Wells Fargo & Company

420 Montgomery Street

San Francisco, California 94104

wellsfargo.com

September 24, 2015

Via e-mail to e-ORI@dol.gov and e-OED@dol.gov

Mr. John J. Canary, Director

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Supplemental Comments on Proposed Conflict of Interest Rule and 

Related Proposals [RIN: 1210-AB32 and ZRIN: 1210-ZA25]

Dear Mr. Canary:

Wells Fargo & Company, and its affiliates, (“Wells Fargo”) welcomes the opportunity to

provide additional comments on the U.S. Department of Labor’s (the “Department”) proposals 

regarding the definition of the term “fiduciary,” new prohibited transaction exemptions and 

amendments to existing exemptions (collectively, the “Proposal”).1

 We hope that these

supplemental comments are helpful to the Department and appreciate the Department’s 

willingness to continue to engage in a dialogue over the Proposal. 

On July 21, 2015, we submitted a comment letter recommending changes to the Proposal 

that we believe would provide our clients with the access to education and support and the 

choices they have today when preparing for retirement while adopting a “best interest” standard 

of care for investment advice. A copy of this comment letter is attached for your reference as 

Appendix A. We also discussed these recommendations with Department officials during an inperson meeting at your offices in Washington, D.C. on July 8, 2015 and during a follow-up 

conference call on July 21, 2015.

We write again to respond to issues raised by Department officials during our July 8th and 

21st meetings. In particular, you asked us for (1) the specific language we would use to revise 

the Proposal in accordance with our recommendations; (2) information regarding how our clients 

benefit from principal transactions; (3) additional investments that are not included in the 

Proposal’s definition of “Asset” that we believe should be included; (4) an example of nonlevelized compensation that we believe still satisfies the Proposal’s provision regarding policies 

and procedures to prevent material conflicts from causing violations of the “Impartial Conduct 

Standards;” and, (5) a proposed timeline for a phased-in implementation should the Proposal 

become a final rule.
Mr. John J. Canary

September 24, 2015

Page 2 of 9

I. Our Recommended Changes to the Proposal.

In Appendices B, C and D to this letter, we offer revisions to the text of the proposed 

definition of the term “fiduciary” (“Re-Proposed Rule”), the proposed Best Interest Contract 

Exemption (“BIC Exemption”) and the Principal Transactions in Certain Debt Securities 

between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (“Principal 

Transaction Exemption”), respectively. Our proposed revisions reflect the recommendations we 

made in our July 21st comment letter.2 We have not endeavored to rewrite the entire ReProposed Rule, BIC Exemption or Principal Transaction Exemption. Instead, our changes are 

focused on sections where we understood the Department may be flexible and where we believe 

alterations are most needed. 

We believe our suggested changes are consistent with the Department’s core objectives for 

the Proposal. In sum, our suggested changes would still (1) establish and acknowledge a 

fiduciary best interest standard; (2) disclose fees; (3) mitigate and disclose conflicts of interest;

(4) ensure compensation is reasonable with respect to services rendered; and, (5) hold advice 

providers accountable. 

We also believe our suggested changes better align the Proposal with current securities and 

Department regulations. For example, we incorporated language from these authorities, where 

appropriate, into the Proposal: Department Interpretive Bulletin 96-1,3 Financial Industry 

Regulatory Authority (“FINRA”) Regulatory Notice 13-45,4 FINRA Rule 2111 (as interpreted 

by FINRA, including Regulatory Notice 12-25),5 the Department’s Reasonable Contract or 

Arrangement Under Section 408(b)(2) – Fee Disclosure6 and Rule 206(3)-3T under the 

Investment Advisers Act of 1940 (“Advisers Act”).7

As more fully set forth in Section II below, we continue to believe any restriction on 

principal transactions will not benefit retirement investors and, as an alternative to the changes 

set forth in Appendix D, the Proposal should simply permit all principal transactions. In 

addition, we continue to recommend variable annuities be offered under Prohibited Transaction 

Exemption (“PTE”) 84-24.

We know the Department received comments from numerous parties regarding the 

Proposal and faces a daunting task in synthesizing the views of many stakeholders into a 

workable final rule. At a minimum, however, we believe the Department must consider changes 

to the following aspects of the Proposal to make it workable:

 Provide Investors with Access to Education. We have proposed changes that would 

narrow the definition of “fiduciary” and expand the carve-outs from the definition to 

reflect current securities regulations regarding investor education, including Department

Interpretive Bulletin 96-1 and FINRA’s Regulatory Notice 13-45.

 Eliminate the BIC Exemption Warranties. We continue to be concerned that the inclusion 

of the warranties in the contract will provide little benefit to clients, while giving rise to 

significant legal, compliance and regulatory risk and uncertainty on the part of financial 

institutions. At most, they should be conditions of the BIC Exemption itself. 
Mr. John J. Canary

September 24, 2015

Page 3 of 9

 Streamline Execution of a Best Interest Contract. Consistent with current commercial and 

regulatory requirements, any required Best Interest Contract should be executed by the 

client during the new account opening process, instead of the proposed tri-party 

arrangement. Furthermore, should there be a requirement to establish a new contractual 

relationship with existing clients, we recommend this be accomplished though a negative 

consent process.

 

 Provide Clients with Access to Advisory Services. We understand the Department did not 

intend to restrict access to such services; if so, the Department should accommodate the 

recommendation of an affiliated or unaffiliated investment adviser or proprietary 

investment advisory program through a carve-out from the Re-Proposed Rule or under the 

BIC Exemption.

 Define “Reasonable Compensation.” As highlighted in the Department’s public hearings, 

recommending an investment product where a level-fee arrangement is not in effect could 

be deemed an unacceptable risk by certain financial institutions, should the Proposal be 

adopted in its current form. As such, in our recommended changes to the BIC Exemption, 

we propose that “reasonable compensation” be defined as “compensation that is normally 

charged for similar transactions,” which definition is consistent with existing Department 

guidance and FINRA rules.

8

 Simplify Disclosures. We support the need for effective disclosures as part of a “best 

interest” standard and encourage the Department to leverage existing disclosure 

requirements, including those disclosures provided under ERISA Section 408(b)(2), 

summary prospectuses, prospectuses, confirms, informational guides (provided by many 

firms as a best practice) and, for registered investment advisers, Form ADV Parts 2A and 

2B. 

 Establish an Appropriate, Phased Implementation Time Period. Given the complexity of 

the Proposal in its current form, the eight month implementation time period is simply 

unattainable and unrealistic. We believe a phased implementation, over a minimum of 

three years, will be needed to ensure uninterrupted services are provided to our clients.

The changes we recommend to the Proposal in Appendices B, C and D address these 

critical concerns. In most cases, we have provided what we believe to be the best resolution of 

the issue as well as alternates in the footnotes. In addition to changes to the text of the Proposal, 

in Section V below, we propose a timeline for a phased-in implementation of the final rule.

II. The Benefit to Our Clients of Principal Trades.

Our current principal transaction practices consistently provide our retail investor clients

with a wide range of fixed income securities offerings and liquidity for these positions, including 

the execution of trades when there are limited markets for the underlying securities. In addition, 

we ensure every principal trade is appropriately priced in relation to the prevailing markets 

through both point-of-trade and independent oversight processes.
Mr. John J. Canary

September 24, 2015

Page 4 of 9

The market we provide to these clients is especially important because of the odd-lot (i.e., 

less than $100,000 par value) nature of retail investor activity, particularly as odd-lot prices are 

generally inferior to regular trading markets. At our Wells Fargo Advisors, LLC (“WFA”) 

affiliate, nearly 200,000 accounts of retirement-age individuals (i.e., those over 60 years-old)

maintain at least one fixed income position, and those accounts hold roughly 905,000 positions 

that are valued at less than $25,000.

The Department has stated that saving retirement investors money is one of the main

impetuses behind the Proposal.

9 For the reasons set forth in our July 21st comment letter, we 

believe the proposed Principal Transaction Exemption would ultimately harm clients because of 

its limited scope and the conditions it imposes. If the Principal Transaction Exemption is 

adopted as currently envisioned, financial institutions may execute all trades in individual 

retirement accounts (“IRAs”) on an agency-basis and retirement investors’ pricing will be 

negatively affected. 

We are concerned the execution of all trades in IRAs on an agency-basis would 

deteriorate both the quality and quantity of suitable fixed income offerings available to our IRA 

clients as they may no longer have access to the roughly 4,000 fixed income offerings that WFA 

makes available to retail investors on a daily basis. These concerns are exacerbated on client 

liquidations, especially where a liquidation is necessary to effect a client’s required minimum 

distribution, and there may be limited or no other liquidity providers in the market.

Furthermore, we note that principal trading activities are currently subject to a robust 

regulatory regime, which ensures appropriate handling of customer orders. Dealers are routinely 

examined by FINRA for compliance with pricing and mark-up requirements under FINRA Rules

5310 and 212110 and Municipal Securities Rulemaking Board (“MSRB”) Rules G-18 (effective 

no later than April 2016) and G-30.

11 By contrast, MSRB Rule G-30(b) explicitly establishes a 

diminished standard for dealers when handling transactions as agent. In addition, where we act 

as an investment adviser and direct the trades in our client’s investment advisory accounts, we 

must seek to obtain best execution in accordance with our fiduciary duties under the Investment 

Advisers Act. 12 Finally, we note a wealth of near real-time market information is already

available to investors at the click of a button through the Trade Reporting and Compliance 

Engine (“TRACE”) and the Electronic Municipal Market Access (“EMMA”) price dissemination 

platforms. 

While we continue to believe there should not be any limitation on principal transactions, 

in Appendix D, we recommend changes to the Principal Transaction Exemption that will benefit 

our clients by providing them access to the liquidity they need to take required minimum 

distributions from their IRAs during their retirement years. Specifically, these changes align the 

Principal Transaction Exemption with Advisers Act Rule 206(3)-3T, which would address the 

same conflict concerns while streamlining adoption of the Exemption by eliminating its

unwieldy requirements, including its (1) limitation to certain debt securities; (2) required 

contract; and, (3) burdensome disclosures. These changes would provide our clients with the 

benefits of our principal trading activities, such as access to suitable, retail-friendly investment 

options and better execution quality in those transactions.
Mr. John J. Canary

September 24, 2015

Page 5 of 9

III. The Impact of the Limited Definition of “Assets” on Our Clients.

The Department has asked us to list any investment that is commonly held in IRAs and not 

included in the definition of “Asset.” 13 In our July 21st comment letter, we noted that the

definition of “Asset” in the Proposal does not reflect the state of the current investment 

environment and excludes numerous investments that investors make in IRAs, including, but not 

limited to, limited partnerships, hedge funds, syndicate offerings, and covered calls, and may 

exclude future product innovations unless it is frequently updated. 

We write in regard to this topic again to note that the limitation of “equity securities” to 

only those “within the meaning of 17 CFR section 230.405 that are exchange-traded securities 

within the meaning of 17 CFR 242.600” will exclude numerous over-the-counter equity 

securities. At our WFA affiliate, this limitation will affect over 100,000 accounts containing 

either a domestic or foreign over-the-counter equity position, which positions total over $1.27 

billion. A large portion of this total is comprised of such prominent foreign issues as Nestlé 

S.A., Roche Holding AG and Siemens AG.

In Appendix B, we recommend changes to the BIC Exemption that will eliminate the 

issues investors will face under the Proposal if they have investments that are not deemed an 

“Asset.” First, we recommend changing the definition of “Asset” to read simply “securities or 

other property.” We continue to believe that as all recommendations will be subject to a “best

interest” standard, there is no need to place limits on investments beyond those Congress has 

already established.14 Second, we would broaden the Exemption for Pre-Existing Transactions 

to all accounts existing as of the effective date of the final rule or in the alternative, to 

investments acquired before the effective date.

IV. An Example of a Compensation Structure that Is Not Level-Fee.

The Department has stated a “level-fee” structure is not required to satisfy the contractual 

warranty regarding policies and procedures. However, as we noted in our July 21st comment 

letter and during our meetings, the five examples the Department provided of permissible 

compensation structures are all variations of level-fee arrangements.15 We believe the following 

example of a compensation structure that is not a level-fee structure satisfies the warranty 

regarding policies and procedures:

Example: Recommending an Investment Product with a Higher Compensation 

Level. Under this example, Product A pays more in compensation to the Adviser

than Product B. When providing investment advice to the Retirement Investor, the 

Adviser considers the Retirement Investor’s investment profile as well as product- or 

strategy-related factors in addition to cost, such as the product’s or strategy’s 

investment objectives, characteristics (including any special or unusual features), 

liquidity, risks and potential benefits, volatility and likely performance in a variety of 

market and economic conditions. Based upon such considerations, the Adviser 

recommends Product A instead of Product B.
Mr. John J. Canary

September 24, 2015

Page 6 of 9

We ask the Department to confirm the above example would satisfy the contractual 

warranty regarding policies and procedures. Alternatively, we ask the Department to eliminate 

the warranties as we continue to believe the ability of investors to seek redress should the “best 

interest” standard be violated is sufficiently protective.

V. A Proposed Phased-In Implementation Timeline.

We, along with numerous other commenters, have recommended the Department establish 

a more realistic implementation time period of at least three years. Further, if the warranties are 

included in the final version of the BIC Exemption and the Exemption for Pre-Existing 

Transactions is not expanded to include all existing IRAs, the implementation time period may 

need to be extended beyond three years. The inclusion of the warranties, as currently proposed, 

in the final version of the rule would require financial institutions to service such accounts in a 

highly controlled environment governed by systems that will take years to build.

We also believe that the Proposal should be implemented in phases and that each phase

allow for adequate time to implement the required activity properly and prepare for the 

subsequent phase. This will ensure there are sufficient resources to devote to designing, 

building, testing and training on each of the required new documents, disclosures, procedures 

and systems. Therefore, we suggest implementation be spread across two phases over thirty-six 

months:

First 24 Months Conclusion of 36 Months

 “Repapering” of existing contracts (if by 

negative consent per our recommendation16)

 Implementation of new account opening 

(“NAO”) documentation (per our 

recommendation for new contracts17)

 Implementation of system to ensure 

investments made after the final rule are 

restricted to “Asset”18 list (if “Asset” list is 

retained as proposed)

 Implementation of transaction disclosure (if 

existing 408(b)(2) disclosures are provided 

to IRA accountholders per our 

recommendation19)

 Revision of training materials

 Revision of marketing materials

 Implementation of data collection and 

recordkeeping requirements20

 Compliance with the Principal Trading 

Exemption (if the Exemption is revised per 

our recommendations)

 Transition investments made before the 

final rule to meet definition of “Asset” (if 

“Asset” list is retained as proposed)

 Implementation of systems to ensure 

adherence to “Impartial Conduct 

Standards”21

 Implementation of annual disclosure22

 Implementation of webpage23

These phases are consistent with the time periods over which similar initiatives were 

implemented. For example, we spent two years implementing the SEC’s Large Trader Reporting 

initiative, over two years developing the Department’s Rule 408(b)(2) disclosures and nearly 

three years establishing the systems necessary to comply with FINRA’s Order Audit Trail 
Mr. John J. Canary

September 24, 2015

Page 7 of 9

system (“OATS”). Most importantly, the implementation of the Proposal in phases is more 

likely to ensure that clients have uninterrupted access to the service and investment options.

We also strongly recommend that the Department provide a compliance relief period for 

those who make a good faith effort to comply in a timely fashion and have added the following 

Section I(d) to both the BIC Exemption and Principal Transaction Exemption:

Good faith. Notwithstanding any other provision to the contrary, the failure to 

comply with any term, condition or requirement of this exemption will not result in 

the loss of the exemption if the failure to comply was insignificant and a good faith 

and reasonable attempt was made to comply with all applicable terms, conditions and 

requirements.

If you would like to further discuss any of Wells Fargo’s comments, please contact Robert 

J. McCarthy, Director of Regulatory Policy for WFA, at (314) 242-3193 or 

robert.j.mccarthy@wellsfargoadvisors.com, or Kenneth L. Pardue, Managing Director, 

Retirement Plans for WFA, at (314) 875-2927 or kenneth.pardue@wellsfargoadvisors.com. 

Once again, we thank the Department for this additional opportunity to comment on the Proposal 

and restate our desire to stay engaged with the Department on this important topic. 

Sincerely,

David M. Carroll

Senior Executive Vice President

Wealth, Brokerage & Retirement

Wells Fargo & Company

cc: The Honorable Thomas E. Perez, Secretary of Labor
Mr. John J. Canary

September 24, 2015

Page 8 of 9

1 Dep’t of Labor, Employee Benefits Security Admin., Definition of Term “Fiduciary”; Conflict of Interest Rule—

Retirement Investment Advice, 80 Fed. Reg. 21928 (proposed Apr. 20, 2015) (to be codified at 29 C.F.R. pts. 2509 

and 2510), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08831.pdf.; Dep’t of Labor, 

Employee Benefits Security Admin., Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21960 (proposed 

Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-

20/pdf/2015-08832.pdf.; Dep’t of Labor, Employee Benefits Security Admin., Proposed Class Exemption for 

Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and Employee Benefit 

Plans and IRAs, 80 Fed. Reg. 21989 (proposed Apr. 20, 2015) (to be codified 29 C.F.R. pt. 2550), available at:

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08833.pdf.; Dep’t of Labor, Employee Benefits Security 

Admin., Proposed Amendment to Prohibited Transaction Exemption (PTE) 75-1, Part V, Exemptions from 

Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Broker-Dealers; 

Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain BrokerDealers, Reporting Dealers and Banks, 80 Fed. Reg. 22004 (proposed Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 

2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08836.pdf; Dep’t of Labor, Employee 

Benefits Security Admin., Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction 

Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, 

Insurance Companies and Investment Company Principal Underwriters, 80 Fed. Reg. 22010 (proposed Apr. 20, 

2015) (to be codified at 29 C.F.R. pt. 2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08837.pdf; Dep’t of Labor, Employee Benefits Security Admin., Proposed Amendment to and Proposed Partial 

Revocation of Prohibited Transaction Exemption (PTE) 86-128 for Securities Transactions Involving Employee 

Benefit Plans and Broker-Dealers; Proposed Amendment to and Proposed Partial Revocation of PTE 75-1, 

Exemptions From Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and 

Certain Broker-Dealers, Reporting Dealers and Banks, 80 Fed. Reg. 22021 (proposed Apr. 20, 2015) (to be codified 

at 29 C.F.R. pt. 2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08838.pdf; Dep’t of 

Labor, Employee Benefits Security Admin., Proposed Amendments to Class Exemptions 75-1, 77-4, 80-83 and 83-

1, 80 Fed. Reg. 22035 (proposed Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 2550), available at:

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08839.pdf.

2 The revisions we offer in Appendices B, C and D also incorporate changes to the text of the Proposal 

recommended by other commenters. Our citations to the comments of other parties are not an endorsement of their 

past or future comments beyond what we specifically included therein.

3 See Dep’t of Labor, Pension and Welfare Benefits Admin., Interpretive Bulletin 96-1; Participant Investment 

Education; Final Rule, 61 Fed. Reg. 29586 (June 11, 1996) (codified at 29 C.F.R. pt. 2509), available at:

http://www.gpo.gov/fdsys/pkg/FR-1996-06-11/pdf/96-14093.pdf.

4 See FINRA, Regulatory Notice 13-45, Rollovers to Individual Retirement Accounts (Dec. 2013), available at: 

https://www.finra.org/sites/default/files/NoticeDocument/p418695.pdf.

5 See FINRA, Rule 2111, Suitability, available at: http://finra.complinet.com/en/display/

display_main.html?rbid=2403&element_id=9859; FINRA, Regulatory Notice 12-55, Suitability (Dec. 2012), 

available at: https://www.finra.org/sites/default/files/NoticeDocument/p197435.pdf.

6 See Dep’t of Labor, Employee Benefits Security Admin., Reasonable Contract or Arrangement Under Section 

408(b)(2) – Fee Disclosure, 72 Fed. Reg. 70988 (proposed Dec. 13, 2007) (to be codified at 29 C.F.R. pt. 2550), 

available at: http://www.gpo.gov/fdsys/pkg/FR-2007-12-13/pdf/E7-24064.pdf.

7 See SEC, Rule 206(3)-3T, Investment Advisers Act of 1940, Temporary Rule for Principal Trades with Certain 

Advisory Clients (codified at 17 C.F.R. pt. 275.206(3)-3T).

8 See, e.g., Dep’t of Labor, Advisory Opinion No. 2002-08A, letter from Louis Campagna, Chief, Division of 

Fiduciary Interpretations, Office of Regulations and Interpretations to Michael A. Crabtree, Esq., Central Pension 

Fund of the International Union of Operating Engineers and Participating Employers (Aug. 20, 2002) (“With regard 

to the selection of service providers under ERISA...the responsible plan fiduciary must engage in an objective 

process designed to elicit information necessary to assess the qualifications of the provider, the quality of services 

offered, and the reasonableness of the fees charged in light of the services provided.”), available at: 

http://www.dol.gov/ebsa/regs/AOs/ao2002-08a.html; FINRA, Rule 2121, Fair Prices and Commissions, available 
Mr. John J. Canary

September 24, 2015

Page 9 of 9

at: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=11539; FINRA, Rule 2122,

Charges for Services Performed, available at: http://finra.complinet.com/en/display/

display_main.html?rbid=2403&element_id=11764.

9 See, e.g., Dep’t of Labor, Employee Benefits Security Admin., Fact Sheet: Department of Labor Proposes Rule to 

Address Conflicts of Interest in Retirement Advice, Saving Middle-Class Families Billions of Dollars Every Year

(Apr. 14, 2015), available at: http://www.dol.gov/protectyoursavings/FactSheetCOI.pdf.

10 See FINRA, Rule 5310, Best Execution and Interposition, available at: http://finra.complinet.com/en/display/

display_main.html?rbid=2403&element_id=10455; FINRA, Rule 2121, Fair Prices and Commissions, available at: 

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=11539.

11 See MSRB, Rule G-18, Best Execution (effective December 7, 2015), available at: http://www.msrb.org/Rulesand-Interpretations/MSRB-Rules/General/Rule-G-18-12-7-2015.aspx; MSRB, Rule G-30, Prices and Commissions, 

available at: http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-30.aspx.

12 See, e.g., In re Jamison, Eaton & Woods, Inc., Investment Advisers Act Release No. 2129 (May 15, 2003); In re 

Michael L. Smirlock, Investment Advisers Act Release No. 1393 (Nov. 29, 1993).

13 See 80 Fed. Reg. at 21987 (§ VIII(c)).

14 See 26 U.S.C. § 408.

15 See 80 Fed. Reg. at 21971.

16 See Correspondence from David M. Carroll, Senior Executive Vice President, Wealth, Brokerage & Retirement, 

Wells Fargo & Company, to John J. Canary, Director, Office of Regulations and Interpretations, Office of 

Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, regarding

Comments on Proposed Conflict of Interest Rule and Related Proposals [RIN: 1210-AB32 and ZRIN: 1210-ZA25] 

(July 21, 2015) (“Wells Fargo July 21 Letter”), at App. A, p. 17 (§ II.A.ii), available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00647.pdf.

17 See id., at App. A, p. 15-16 (§ II.A.i).

18 See 80 Fed. Reg. at 21987 (§ VIII(c)).

19 See Wells Fargo July 21 Letter, at App. A, p. 55 (§ II.D).

20 See 80 Fed. Reg. at 21986 and 21988 (§§ V and IX).

21 See id. at 21984 (§ II(c)).

22 See id. at 21985 (§ III(b)).

23 See id. (§ III(c)).
Appendix A (Sept. 24, 2015)

Wells Fargo & Company

420 Montgomery Street

San Francisco, California 94104

wellsfargo.com

July 21, 2015

Via e-mail to e-ORI@dol.gov and e-OED@dol.gov

Mr. John J. Canary, Director

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Comments on Proposed Conflict of Interest Rule and Related Proposals

[RIN: 1210-AB32 and ZRIN: 1210-ZA25]

Dear Mr. Canary:

Wells Fargo & Company, and its affiliates, (“Wells Fargo”) welcomes the opportunity to 

comment on the U.S. Department of Labor’s (the “Department”) proposals regarding the

definition of the term “fiduciary,” new prohibited transaction exemptions and amendments to 

existing exemptions (collectively, the “Proposal”).1

 We hope that our comments are helpful to 

the Department as it assesses the potential impacts of the Proposal on retirement plans and their 

participants. 

Who We Are and Whom We Serve

Wells Fargo is committed to providing individuals and their families with the advice and 

guidance they need to plan and save for retirement. We supported the Department’s core 2010 

“best interest” standard of care concepts2 and the Securities and Exchange Commission’s (the 

“SEC” or the “Commission”) exploration of a uniform standard of care under the Federal 

Securities Laws,

3 and we remain supportive today of a “best interest” standard of care for clients. 

We welcome the Department’s continued focus on this important issue and intend to be a 

collaborative partner with the Department as this dialogue continues. 

Wells Fargo serves 70 million clients or one in every three American households. We hold 

over $390 billion in individual retirement account (“IRA”) assets for over 4 million IRA owners 

and $400 billion in institutional retirement plan assets for over 3 million retirement plan 

participants. This makes us the 6th largest IRA provider and the 7th largest institutional 

retirement plan recordkeeper (based on assets) in the United States. We serve our clients when, 

where and how they want to be served – through financial professionals, bank and brokerage

branches, call centers, websites, mobile devices or a combination of these options – to help them 

succeed financially.
Appendix A (Sept. 24, 2015) Mr. John J. Canary 

July 21, 2015

Page 2 of 6

As a leading provider of retirement solutions to millions of people of varying means and 

needs, we are uniquely positioned to provide insight into how the Proposal may impact the 

ability of Americans to invest for retirement. We, like the Department, see the growing 

importance of saving through both IRAs and individual and employer-sponsored retirement 

plans (e.g., 401(k) plans). Based on our first-hand experience, we believe a “best interest”

standard of care for clients must both facilitate greater access to financial information and 

services and be flexible enough to serve all retirement investors – from those just beginning their 

savings journey to those nearing or in retirement.

We have found, consistent with independent studies, that Americans working with a 

financial professional generally save more,4 enjoy greater investment returns5 and have greater 

wealth at retirement than those who do not work with a financial professional.

6

 Indeed, Wells 

Fargo’s 2014 Middle-Class Retirement Study showed that people with a written plan for 

retirement were saving a median of $250 per month, far greater than the median $100 per month 

being saved by those without a written plan. This difference is the result of financial 

professionals working hard every day to help clients understand their goals, developing financial 

strategies to achieve those goals and encouraging clients to stick to those strategies during times 

of uncertainty. 

Therefore, we support efforts by the Department to encourage Americans to work with a 

financial professional to obtain the assistance they need to successfully plan for their financial 

future. As a recent Vanguard study found, an advisor’s added value “is more aptly demonstrated 

by the ability to effectively act as wealth manager, financial planner, and behavioral coach –

providing discipline and reason to clients who are often undisciplined and emotional – than 

efforts to beat the market.”7 In other words, people facing difficult, and critical, financial 

choices benefit when working with a financial professional – and not just from technical advice 

on particular investments.

Wells Fargo Supports a Best Interest Standard

We agree with the core concept of the Proposal that financial professionals should be 

required to act in the “best interest” of their clients at all times. We also commend the 

Department for making great strides since 2010 in developing a new “fiduciary” definition that 

seeks to incorporate input from many stakeholders. We believe, however, the Proposal remains 

too broad in some respects, too strict in others and too complex overall. If the Proposal becomes 

effective as currently envisioned, the likely result will be that investors, particularly middle-class 

savers, will receive less individualized retirement education and support and have fewer choices 

when preparing for retirement than they have today. 

We propose to address these challenges by recommending a “best interest” standard of 

care that fosters greater access to financial education and retirement services for every investor. 

Our recommendation is to simplify and incorporate additional flexibility into the Proposal so that

retirement investors will retain access to the information, advice and services that best fit their 

individual circumstances, while also benefitting from an explicit higher standard of care. 
Appendix A (Sept. 24, 2015) Mr. John J. Canary 

July 21, 2015

Page 3 of 6

We believe a “best interest” standard of care based on the following core principles could 

be implemented relatively quickly and, most importantly, would help investors meet their 

retirement planning goals. Below each principle, we summarize our recommended changes to

the Proposal to better align it with that principle. In Appendix A to this letter, titled Detailed 

Comments of Wells Fargo Regarding the Department’s “Fiduciary” Proposal, we provide our

detailed comments on the key areas where we believe retirement investors will be negatively 

affected by the Proposal and offer alternative solutions to address those impacts and to achieve 

our common goal of establishing a “best interest” standard of care. 

 

1. Encourage Clients’ Financial Education

People facing important financial decisions should have access to more, not less, financial 

information and assistance. In these times, financial professionals should continue to serve as an 

important source of financial education and information for all investors. 

Recommendation: We recommend the definition of “fiduciary” in the Proposal be 

narrowed and the Proposal’s carve-outs and contemplated exemptions be expanded. This will 

allow investors to continue to obtain the financial information and education they need from 

financial professionals or retirement plan service providers, helping them to be better informed 

decision-makers.

2. Establish a “Best Interest” Standard of Care for Clients

A financial professional should be required to act in the client’s best interest with the 

flexibility to recommend individualized investments and service models to help each client 

achieve their unique retirement planning goals. 

Recommendation: The complexity and cost of the Best Interest Contract Exemption (“BIC 

Exemption”) as proposed makes it an unworkable solution; as a result, there may be fewer 

available investment and service options, particularly for middle-class savers. For example, we 

are uncertain whether recommending best in class products and services to clients that are not the 

lowest cost option are permitted under the BIC Exemption’s “impartial conduct standards.” 

Consequently, such products would likely not be offered to clients. We believe the proposed 

contract under the BIC Exemption should be narrowed to focus on establishing a “best interest”

standard of care for clients, which would ensure investment advice is based on the unique needs 

of each investor. Likewise, to serve the best interests of each client, we believe principal 

transactions should be permitted without the complicated conditions of the proposed Principal 

Transaction Exemption. Alternatively, any conditions should align with the Investment Advisers 

Act of 1940 to reduce regulatory conflicts and likely improve and simplify clients’ experiences. 

3. Disclose Fees and Commissions to Clients

Clients should be provided clear “plain-English” information regarding fees and charges 

for products and services and should not be overwhelmed with complex disclosures. 
Appendix A (Sept. 24, 2015) Mr. John J. Canary 

July 21, 2015

Page 4 of 6

Recommendation: The disclosure requirements contemplated by the BIC Exemption 

should leverage existing disclosures, instead of creating entirely new and overly complex 

requirements. For example, the Department recently developed new disclosures requirements 

under Employee Retirement Income Security Act (“ERISA”) Section 408(b)(2), to specifically 

address fee and conflict issues for ERISA-covered plans. Service providers have spent 

considerable time and effort developing systems and documents that comply with these 

requirements. In the interest of simplicity and efficiency, the existing 408(b)(2) disclosures 

should be used to provide IRA accountholders with the same detailed fee transparency and 

conflict information.

4. Reduce or Eliminate Conflicts of Interest and Disclose Them to Clients

Conflicts of interest that may impact a financial professional’s ability to act in the best 

interest of the client should be reduced or, where possible, eliminated and in any event,

disclosed.

Recommendation: The BIC Exemption should use existing Form ADV (presently used by 

SEC registered investment advisers). Form ADV was designed specifically to inform investors 

of potential conflicts of interest and could help clients further understand a financial 

professional’s compensation and reduce or eliminate conflicts of interest.

5. Hold Advice Providers Accountable 

Clients should be confident that a financial professional is providing advice in their best 

interest. 

Recommendation: The parties should enter into a binding agreement – similar to the BIC 

Exemption contract discussed in our detailed comments – at account opening, which commits the 

financial institution to work in the best interest of each client and provides a remedy should the 

standard be breached.

6. Eliminate Overlapping Regulations with a Regulatory Exemption

Based on our experience, we believe clients will receive the best advice under a uniform 

standard of care. A uniform standard would provide the most beneficial protection for clients by 

creating one set of obligations across all account types, eliminating client confusion concerning 

what advice comes with a particular type of account. 

Recommendation: To encourage broader adoption of a uniform “best interest” standard of 

care for clients, we believe an exemption should be created for broker-dealers or other regulated 

entities that are subject to a “best interest” standard of care for their clients adopted by another 

regulator or self-regulatory organization meeting the Department’s fundamental requirements. 
Appendix A (Sept. 24, 2015) Mr. John J. Canary 

July 21, 2015

Page 5 of 6

7. HSAs and Similar Accounts Serve Different Client Needs

Health Savings Accounts (“HSAs”), Coverdell Education Savings Accounts (“ESAs”) and

other similar accounts are fundamentally different from retirement accounts in their purpose and 

operation. 

Recommendation: The Department requested comment on the advisability of including 

HSAs, ESAs and other similar accounts in this Proposal. We believe HSAs and ESAs and other 

similar accounts should be excluded from the Proposal altogether, because clients primarily use 

these accounts as spending accounts and not to save for retirement.

8. An Appropriate Implementation Time Period Is Crucial to Client Service

Retirement savers have trillions of dollars invested under the existing regulatory structure. 

A reasonable time to design, build, test and train on new documentation, disclosures, procedures 

and systems must be permitted to continue servicing existing and new clients. 

Recommendation: Clients may have limited service and investment options if service 

providers are not able to implement all the new documentation, disclosures, procedures and 

systems called for in the Proposal within the implementation time period. For example, we 

could not use the BIC Exemption until all the proper controls and disclosures are in place. Given 

the complexity of the Proposal in its current form, the eight month implementation time period is 

simply unattainable and unrealistic. We believe three years, if not more, is necessary to ensure 

all the requirements of the Department’s proposed rule are properly implemented. 

***********

Once again, we thank the Department for the opportunity to comment on the Proposal and 

intend to stay engaged with the Department on this important topic. In addition to Appendix A –

Detailed Comments of Wells Fargo Regarding the Department’s “Fiduciary” Proposal, 

Appendix B – A Summary of Wells Fargo’s Recommended Changes to the Proposal has also 

been included for your quick reference.

Sincerely,

David M. Carroll

Senior Executive Vice President

Wealth, Brokerage & Retirement

Wells Fargo & Company

cc: The Honorable Thomas E. Perez, Secretary of Labor
Appendix A (Sept. 24, 2015) Mr. John J. Canary 

July 21, 2015

Page 6 of 6

1 Dep’t of Labor, Employee Benefits Security Admin., Definition of Term “Fiduciary”; Conflict of Interest Rule—

Retirement Investment Advice, 80 Fed. Reg. 21928 (proposed Apr. 20, 2015) (to be codified at 29 C.F.R. pts. 2509 

and 2510), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08831.pdf.; Dep’t of Labor, 

Employee Benefits Security Admin., Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21960 (proposed 

Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-

20/pdf/2015-08832.pdf.; Dep’t of Labor, Employee Benefits Security Admin., Proposed Class Exemption for 

Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and Employee Benefit 

Plans and IRAs, 80 Fed. Reg. 21989 (proposed Apr. 20, 2015) (to be codified 29 C.F.R. pt. 2550), available at:

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08833.pdf.; Dep’t of Labor, Employee Benefits Security 

Admin., Proposed Amendment to Prohibited Transaction Exemption (PTE) 75-1, Part V, Exemptions from 

Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Broker-Dealers; 

Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain BrokerDealers, Reporting Dealers and Banks, 80 Fed. Reg. 22004 (proposed Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 

2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08836.pdf; Dep’t of Labor, Employee 

Benefits Security Admin., Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction 

Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, 

Insurance Companies and Investment Company Principal Underwriters, 80 Fed. Reg. 22010 (proposed Apr. 20, 

2015) (to be codified at 29 C.F.R. pt. 2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08837.pdf; Dep’t of Labor, Employee Benefits Security Admin., Proposed Amendment to and Proposed Partial 

Revocation of Prohibited Transaction Exemption (PTE) 86-128 for Securities Transactions Involving Employee 

Benefit Plans and Broker-Dealers; Proposed Amendment to and Proposed Partial Revocation of PTE 75-1, 

Exemptions From Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and 

Certain Broker-Dealers, Reporting Dealers and Banks, 80 Fed. Reg. 22021 (proposed Apr. 20, 2015) (to be codified 

at 29 C.F.R. pt. 2550), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08838.pdf; Dep’t of 

Labor, Employee Benefits Security Admin., Proposed Amendments to Class Exemptions 75-1, 77-4, 80-83 and 83-

1, 80 Fed. Reg. 22035 (proposed Apr. 20, 2015) (to be codified at 29 C.F.R. pt. 2550), available at:

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08839.pdf.

2 See generally Correspondence from Joseph Ready, Executive Vice President of Wells Fargo Institutional 

Retirement and Trust to the Office of Regulations and Interpretations, Employee Benefits Securities Administration, 

regarding RIN 1210-AB32, Definition of Fiduciary Proposed Rule (Feb. 3, 2011), available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-176.pdf.

3 See Correspondence from Robert J. McCarthy, Director of Regulatory Policy at Wells Fargo Advisors, LLC, to 

Elizabeth M. Murphy, Secretary of Securities and Exchange Commission, regarding File No. 4-606; Release No. 

34-69013; IA-3558; Duties of Brokers, Dealers and Investment Advisers, at 2-7 (July 5, 2013), available at:

https://www.sec.gov/comments/4-606/4606-3127.pdf (outlining Wells Fargo’s support for a uniform fiduciary duty 

that: (i) incorporates a duty of loyalty to act in the client’s best interests; (ii) protects broker-dealer and investment 

adviser business models; (iii) preserves client choice in service and pricing models; (iv) applies only to personalized 

investment advice; (v) covers only transactions resulting in compensation; (vi) preserves access to the full range of 

securities products and services; and, (vii) facilitates flexible and practical disclosure and consent).

4 Claude Montmarquette and Nathalie Viennot-Briot, “Econometric Models on the Value of Advice of a Financial

Advisor,” Centre for Interuniversity Research and Analysis on Organizations (CIRANO) (July 2012), at 9, 15-35, 

56, available at: http://www.cirano.qc.ca/pdf/publication/2012RP-17.pdf.

5 David Blanchett and Paul Kaplan, “Alpha, Beta, and Now...Gamma,” Morningstar Investment Management (Aug.

28, 2013), at 16, available at: http://corporate.morningstar.com/ib/documents/PublishedResearch/ 

AlphaBetaandNowGamma.pdf.

6 Id.

7 Donald G. Bennyhoff and Francis M. Kinniry Jr., “Advisor’s Alpha,” Vanguard Research (Apr. 2013), at 3,

available at: https://advisors.vanguard.com/iwe/pdf/ICRAA.pdf?cbdForceDomain=true.
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co. 

Appendix A

DETAILED COMMENTS OF WELLS FARGO

REGARDING THE DEPARTMENT’S “FIDUCIARY” PROPOSAL

We applaud the Department’s efforts to establish a “best interest” standard and recognize 

that the Proposal represents a significant undertaking. The Proposal’s complicated provisions, 

however, contain elements that effectively undermine its stated objectives and impose new limits 

on retirement investors’ choice of investment products and services, and their access to financial 

education at times when they need it the most. This appendix discusses the key areas where we 

believe retirement investors will be negatively affected by the Proposal and provides specific 

recommendations on how to address those impacts to achieve our common goals. We include at 

the outset a table of contents to guide the Department through our comments. While we believe 

there should be one uniform “best interest” standard for all clients, we secondarily believe the 

Department’s Proposal, which impacts retirement advice only, may be made more workable by 

incorporating the recommendations set forth herein.

TABLE OF CONTENTS

I. THE PROPOSED DEFINITION OF “FIDUCIARY” IS 

OVERLY BROAD AND RESTRICTS ACCESS TO INFORMATION........................1

A. The Definition of Investment Advice Should Be Narrowed.......................................1

i. We Recommend Clarifying that Providing General Information 

About Our Products and Services Does Not Constitute Investment Advice ......2

ii. We Recommend Adding a “Mutual 

Understanding” Element to the Definition..........................................................3

iii. We Recommend Deleting “Specifically Directed to” 

from the Definition or, at a Minimum, Adding the 

Phrase “Advice that Is Individually Tailored” to Narrow 

the “Specifically Directed to” Element of the Definition ...................................3

iv. We Recommend Clarifying that “Investment Advice” 

Means a “Recommendation” – Consistent With Current 

Securities Law – and Should Apply After New Account Opening ....................4

B. Additional Parties Should Be Included in the Seller’s Carve-Out ............................5

i. We Recommend Including All 

ERISA-Covered Plans, Regardless of Size.........................................................5

ii. We Recommend Including Sophisticated Investors ...........................................5

iii. We Recommend Revising the Carve-Out to Accommodate 

Requests for Proposals and Similar Sales Transactions......................................6

C. The Platform Providers and Selection and 

Monitoring Assistance Carve-Outs Should Be Expanded .........................................6

i. We Recommend the Carve-Outs Cover All Platforms.......................................6

ii. We Recommend Allowing the Provision of 

Objective, Publicly Available Investment Information ......................................7
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co. 

Appendix A

ii

iii. We Recommend Allowing Service Providers to 

Assist Plan Fiduciaries in Creating a Platform and 

Believe Clarity Is Needed Regarding Platform Marketing.................................7

D. The Financial Reports and Valuations Carve-Out Should Be Expanded.................8

E. The Investment Education Carve-Out Should Be Expanded ....................................9

i. We Recommend Permitting Investment Information as Education....................9

ii. We Recommend Rollover Assistance Be Considered Education.....................11

F. HSAs and ESAs – non-ERISA accounts –

Should Be Carved-Out of the Proposal.....................................................................12

i. HSAs Are Used to Pay for Health Care Expenses and 

Cannot Receive Rollovers from Traditional ERISA Plans...............................12

ii. ESAs Are Used to Pay for Education Expenses and 

Cannot Receive Rollovers from Traditional ERISA Plans...............................14

II. THE BEST INTEREST CONTRACT 

EXEMPTION IS IMPRACTICABLE AS PROPOSED ................................................14

A. The Proposed “Written Contract” Is Not Operationally Feasible...........................15

i. We Recommend the Contract Only Be Executed 

After a Prospective Customer Becomes a Customer ........................................15

ii. We Recommend Any Required Repapering of 

Current Client Agreements Be Effectuated Via Notice ....................................17

iii. We Recommend the BIC Exemption Not Require 

Actual Signatures in Connection with the Contract..........................................17

B. The Terms Used in the “Impartial Conduct Standards” 

Should Be Clarified to Ensure Investor Choice .......................................................18

i. We Recommend Retirement Investors 

Have the Freedom to Choose Prudent Products................................................18

ii. We Recommend Retirement Investors Have the 

Freedom to Choose Appropriate Payment Models...........................................20

iii. We Recommend Providing Guidance on How

Financial Professionals Can Recommend Proprietary 

Products Under the “Impartial Conduct Standards” .........................................21

C. The Definition of “Asset” Unnecessarily Limits Investor Choice ...........................22

i. We Believe the Recommendation of a Firm 

Sponsored Advisory Program Must Be Clearly Permitted ...............................22

ii. We Recommend Eliminating the “Asset” List..................................................22

iii. We Recommend Annuities Continue to Be Offered Under PTE 84-24 ...........23

iv. We Recommend Eliminating Limits on Sophisticated Investor Choice...........23

v. We Recommend the BIC Exemption Provide Limited 

Compliance Requirements for Products and Services 

that Address Conflict Issues Under Existing Regulations................................24
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co. 

Appendix A

iii

D. The Proposed Disclosures Fail to Leverage 

Existing Disclosures and Will Not Be Effective .......................................................24

i. We Believe the Point of Sale Transaction 

Disclosure Is Duplicative of Existing Disclosures............................................25

ii. We Believe the Annual Disclosure Is Unnecessary..........................................26

iii. We Are Concerned that the Public 

Website Disclosure Will Increase Costs...........................................................26

iv. We Believe the Data Disclosure to 

the Department is Overly Burdensome.............................................................27

E. The BIC Exemption Contract Warranties Are Unnecessary ...................................27

F. The Range of Investment Options Notice and 

the BIC Exemption’s Other Provisions Are Incongruous.......................................28

G. The Pre-Existing Transactions Exemption Should Be Broadened .........................28

III. THE PRINCIPAL TRANSACTION EXEMPTION IS TOO NARROW AND 

SHOULD LEVERAGE EXISTING REGULATORY REQUIREMENTS .................29

A. The Exemption Should Include Other Types of Securities......................................30

B. A Client’s Written Prospective Consent 

to Act as a Principal Should Be Sufficient ...............................................................30

C. The Disclosures Required Under 

the Exemption Are Unnecessarily Burdensome.......................................................31

D. Existing Investor Protections Mitigate the Risk of Excessive 

Mark-Ups/Mark-Downs and the Need for Additional Pricing Transparency ........32

IV. MEETING THE EIGHT-MONTH 

IMPLEMENTATION DEADLINE IS IMPOSSIBLE...................................................32

V. AN EXEMPTION SHOULD BE MADE FOR ACTIVITIES

REGULATED BY AN SRO OR A REGULATORY AGENCY ...................................33

VI. CONCLUSION...................................................................................................................35
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

1

I. THE PROPOSED DEFINITION OF “FIDUCIARY” IS 

OVERLY BROAD AND RESTRICTS ACCESS TO INFORMATION.

Planning for their financial future is one of the most important and daunting tasks facing 

retirement investors and businesses today. Investors face an investment landscape filled with a 

broad choice of retirement products and investment options that is accompanied by reams of 

complex information. Sorting through these options and information can be confusing and 

overwhelming. Consequently, many individuals and business owners seek assistance to help 

them understand the strategies, retirement products and investment options that may be 

appropriate to help them achieve their financial goals, both to accumulate assets for retirement 

and to spend those assets responsibly during retirement. 

Indeed, the Department noted in the Proposal’s preamble “the need for plans and IRA 

owners to seek out and rely on sophisticated financial advisers to make critical investment 

decisions in an increasingly complex financial marketplace.”1

 The Department further states the 

Proposal is “intended to ensure that small plan fiduciaries, plan participants and IRA owners 

would be able to obtain the essential information regarding important decisions they make 

regarding their investments without the providers of that information crossing the line into 

fiduciary status.”2

Unfortunately, the combination of expanding the definition of covered advice so broadly 

as to classify all manner of information as fiduciary advice while providing only narrow 

exemptive relief from Employee Retirement Income Security Act’s (“ERISA”) prohibited 

transaction provisions, undermines the stated intent of the Proposal. Below, we make 

recommended modifications to the Proposal to help ensure that retirement investors will continue 

to have access to the information they need to be informed decision-makers while receiving the 

protections sought by the Department. 

A. The Definition of Investment Advice Should Be Narrowed. 

Individuals and their families seeking retirement assistance, whether in a retirement plan or 

otherwise, want to know what products and services are available to help them. They can then 

make an informed decision about whether to invest with a financial professional, select their own 

retirement products or take no action. As noted above, the Department concurs that financial 

professionals should be able to provide “essential information” to retirement investors without 

crossing the line into fiduciary status.

The current regulation regarding the establishment of a fiduciary relationship is 

straightforward and workable. Under the regulation, a financial professional becomes a fiduciary 

by providing investment advice, when it is provided on a regular basis and where there is a 

 1 80 Fed. Reg. at 21929.

2 Id. at 21942.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

2

mutual agreement, arrangement or understanding that the advice will form a primary basis for 

the investment decision. Thus, fiduciaries know when they are fiduciaries and the identity of the 

persons relying on them for investment advice. This also leaves investors free to seek retirement 

investment information from financial professionals without that professional crossing the line to 

become a fiduciary.

Under the Proposal, fiduciary status attaches at the “suggestion”3 that a person take a 

particular course of action that is “individualized to” or “specifically directed to” that person for 

“consideration in making investment...decisions.”4 This is so broad as to encompass nearly 

every conversation between a financial professional and a client or prospective client regarding 

retirement products and services. As a result, we believe the Proposal will unreasonably restrict 

the essential information that individuals receive unless it is modified as set forth below.

i. We Recommend Clarifying that Providing General Information 

About Our Products and Services Does Not Constitute Investment Advice.

Any conversation between a financial professional and a retirement investor regarding 

retirement products or services will inevitably be used by the investor to determine if the 

financial professional is the right fit for them, which means the conversation will necessarily be 

classified as “for consideration in making investment...decisions” and fiduciary obligations 

would attach under the Proposal. To encourage the free flow of information between a 

retirement investor and a financial professional, we recommend the Department revise the 

Proposal to permit individuals to receive information about available retirement product options 

(including available investment options and the costs associated with particular products) so that 

they can understand the available options before establishing a binding fiduciary relationship 

with a financial professional. 

The fiduciary commitment should begin at the point at which the retirement investor relies 

on the financial professional and the financial professional receives compensation. Most 

logically, this would occur at the time an account is opened or the product is purchased by the 

investor. This means that access to investment, distribution and other assistance would be 

preserved while investors would still be protected through the application of a “best interest” 

standard when the investor opens an account, deposits funds, acquires a specific product, 

acknowledges a fiduciary relationship or reviews specific investment recommendations with the 

financial professional as discussed further in Section I.A.iv. below.

In addition, the scope of the Proposal in its current form also potentially pulls in 

relationships where each party’s status is unclear. For example, mutual fund wholesalers often 

provide education to financial professionals on the product their company offers and mutual fund 

service center representatives answer product questions from financial professionals. These 

 3 80 Fed. Reg. at 21960 (§ 2510.3-21(f)(1)). 

4 Id. at 21957 (§ 2510.3-21(a)(2)(ii)).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

3

activities may be deemed fiduciary if the inquiring financial professional is a plan fiduciary or if 

the call center provides distribution options even without providing advice. We recommend the 

Department clarify that this type of activity is information sharing between intermediaries and 

not investment advice.

ii. We Recommend Adding a “Mutual Understanding” Element to the Definition.

The Department has eliminated the “mutual agreement” requirement contained in the 

current regulation. However, financial professionals must have the ability to discuss their 

products and services, which is the “essential information” an investor needs, without arbitrarily 

“crossing the line into fiduciary status.” We believe the most appropriate and easily 

determinable time to attach fiduciary obligations is when the financial professional and the 

retirement investor reach some mutual understanding that they have entered into an advice 

relationship. If the understanding is not mutual, providers seeking to comply with the duties of a 

fiduciary will not know when those duties attach and will not know what information they may 

give. 

The Department’s broader language could make a larger group of providers liable as 

fiduciaries and does not accomplish the objective of enhancing the quality of advice that 

providers give to individuals while still providing access to “essential information.” We 

understand that the Department is concerned that individuals or entities may seek to avoid 

fiduciary status by deliberately refusing to agree to such status, even when the other facts of the 

relationship would support a fiduciary role. For this reason, we suggest that the parties should 

have a reasonable expectation that they are in a fiduciary relationship and that the final rule 

include a requirement that this arrangement or agreement be “mutually understood.” 

iii. We Recommend Deleting “Specifically Directed to” from the 

Definition or, at a Minimum, Adding the Phrase “Advice that Is Individually 

Tailored” to Narrow the “Specifically Directed to” Element of the Definition.

In order to make an informed decision about retirement assets, individuals need to have 

information about the products and services available to them. However, because investment 

advice is defined so broadly under the Proposal, even activities such as mailing brochures that 

discuss a financial institution’s product and service offerings, including IRA or plan services, 

would be considered “specifically directed to” a recipient and thus inappropriately be considered 

fiduciary investment advice. 

Furthermore, advertisements that are specifically targeted to investors based upon past 

consumer behavior or demographic information would also inappropriately be considered 

fiduciary investment advice. For instance, today, by virtue of online activity, individuals receive

advertisements that are tailored to them based on prior online activity. In these instances, the 

information may be delivered in response to prospective client needs or interests, but the 

financial institution does not have enough information to make a true recommendation for the 
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

4

information recipient, nor would the recipient reasonably understand the information to be 

anything other than sales material. 

If an individual pursued a product or service as a result of this kind of material, he or she 

typically would receive additional specific information and, if working with a financial 

professional, would be able to provide personal information that could help the financial 

professional make a specific fiduciary recommendation. Thus, we believe the “specifically 

directed to” element of the definition by itself is unnecessarily broad and any recommendation 

should be individually tailored to the recipient before it could be considered “advice.” We 

recommend either deleting the phrase “specifically directed to” from the definition of 

“investment advice” or adding “advice that is individually tailored” to the definition.

Finally, a materiality or reliance qualifier is also necessary to narrow the scope of fiduciary 

advice. Such a qualifier will focus the application of fiduciary obligations on activities and 

actions of the most importance and raise the very low bar set by the proposed “for consideration” 

standard. Logically, if the retirement investor does not rely on the advice there should be no 

compensable damages, but the absence of an explicit qualifier from the regulation will likely 

have a chilling effect on the provision of general education information that the producer does 

not intend as advice.

iv. We Recommend Clarifying that “Investment Advice” 

Means a “Recommendation” – Consistent With Current 

Securities Law – and Should Apply After New Account Opening.

The Department states that it looked to Financial Industry Regulatory Authority 

(“FINRA”) guidance on when suitability obligations attach to recommendations to help guide the 

Department in determining when fiduciary obligations should attach to retirement investor 

interactions.5 FINRA guidance to its Rule 2111, or the “Suitability Rule,” applies to 

recommendations to a “potential investor” who then becomes a “customer.” Thus, the 

Suitability Rule’s investor protections extend to prospective clients if that individual executes 

transactions through the broker-dealer that made the recommendation or if the broker-dealer 

receives or will receive compensation as a result of the transaction.6

 Under FINRA’s guidance, 

broker-dealers do not escape liability for a recommendation made prior to account opening but 

later implemented at account opening.7

 We believe the same standard would be appropriate for 

determining when fiduciary obligations attach under the Proposal and would establish a brighter

line for when fiduciary status begins for both the investor and financial professional. 

 5 See, e.g., 80 Fed. Reg. at 21938 and 21945.

6 See FINRA, Regulatory Notice 12-55, Suitability (Dec. 2012), at 2 (FAQs 6(a) and 6(b)), available at: 

https://www.finra.org/sites/default/files/NoticeDocument/p197435.pdf.

7 See Id. at 6 (FAQ 6(b), n.10) (“[For a] recommendation to a potential investor, suitability obligations attach when 

the transaction occurs, but the suitability of the recommendation is evaluated based on the circumstances that existed 

at the time the recommendation was made.”).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

5

B. Additional Parties Should Be Included in the Seller’s Carve-Out.

The Department states that the “overall purpose” of the carve-out for counterparty 

transactions with plan fiduciaries8 (“Seller’s Carve-Out”) is “to avoid imposing ERISA fiduciary 

obligations on sales pitches that are part of arm’s length transactions where neither side assumes 

that the counterparty to the plan is acting as an impartial trusted adviser, but the seller is making 

representations about the value and benefits of proposed deals.”9

 As currently proposed, the 

Seller’s Carve-Out fails to achieve this purpose.

i. We Recommend Including All ERISA-Covered Plans, Regardless of Size.

The availability of the Seller’s Carve-Out depends on (1) the number of participants in the 

plan and (2) the amount of plan assets under management of the plan fiduciary. If a plan does 

not satisfy these threshold requirements, the Seller’s Carve-Out is unavailable whether or not 

“neither side assumes that the counterparty to the plan is acting as an impartial trusted adviser.”10 

Any requirement based on plan size will raise the practical problem of monitoring plan sizes, 

which tend to vary. Thus, it may not be clear whether a plan falls within the Seller’s Carve-Out 

at the time a particular recommendation is made. As all ERISA fiduciaries are required to have 

or obtain sufficient expertise to prudently discharge their duties, we recommend the Seller’s 

Carve-Out should not be conditioned on plan size. 

Recognizing the Department’s efforts in this area, plan fiduciaries are typically educated 

on these requirements and use many of the same bidding and review processes when engaging a 

provider and making investment decisions. We note also that plan size does not necessarily 

correlate to the investment sophistication of the plan’s fiduciary or to their willingness to engage 

consulting assistance when needed. Small companies may engage in complex and expensive 

business transactions and are considered to have sufficient expertise for such transactions. As 

we believe commercial entities do have different expectations and expertise than individuals, we 

recommend the Seller’s Carve-Out should be amended to cover all ERISA-covered plans, 

regardless of size. 

ii. We Recommend Including Sophisticated Investors.

As set forth above, we believe all plans should be carved-out. At a minimum, however, we 

believe the Seller’s Carve-Out should include accredited retail and institutional investors. The 

stated purpose of the Seller’s Carve-Out’s current conditions is to serve as “proxies for 

identifying persons with sufficient investment-related expertise to be included in a Seller’s 

Carve-Out.”11 Accreditation serves to identify those with sufficient financial sophistication to 

understand and bear economic risk. Moreover, including accredited investors in the Seller’s 

Carve-Out would be consistent with other securities regulations, such as Regulation D of the 

 8 80 Fed. Reg. at 21957 (§ 2510.3-21(b)(1)(i)).

9 Id. at 21941. 

10 Id.

11 Id. 
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Securities Act,12 where regulators have acknowledged that accredited investors do not require 

the same protections as other investors.

iii. We Recommend Revising the Carve-Out to Accommodate

Requests for Proposals and Similar Sales Transactions.

Under the Proposal, the Seller’s Carve-Out has a number of conditions, including a 

requirement that the counterparty receive certain written representations (or have a reasonable 

belief that the counterparty meets certain size or sophistication criteria). However, for ERISAcovered plans, it is unlikely that this kind of information would be received in a sales transaction.

Service providers often receive requests for proposals (“RFPs”) or other similar sales 

proposals from plan fiduciaries or their agents, such as consultants. The RFP may or may not 

disclose sufficient information for the service provider to determine whether the Seller’s CarveOut would apply, and is often in a format that would make it difficult to obtain the various 

representations required under the Carve-Out. RFPs often ask for sample fund line-ups and other 

criteria which would likely be considered investment advice under the Proposal. The service 

provider is usually one of many providers competing for the business offered in the RFP, and 

may respond, but not win the business. As RFPs and similar types of sales transactions are wellrecognized as arm’s length discussions and both parties understand that a subsequent negotiation 

must take place, we recommend RFP responses and similar types of sales transactions should be 

included in the types of transactions carved-out from “investment advice.”

C. The Platform Providers and Selection and 

Monitoring Assistance Carve-Outs Should Be Expanded.

i. We Recommend the Carve-Outs Cover All Platforms.

Products and product platforms are not developed with individual plans, participants or 

retirement investors in mind. The investments available through a platform may be impacted by 

a number of operational or other considerations, such as the availability of an agreement with a 

particular fund family. Because of such considerations, we are not aware of any platform that 

offers every permissible investment option available in the universe of investment options. By 

 12 See Rule 501, Regulation D, Securities Act of 1933, Definitions and Terms Used in Regulation D (17 CFR 

230.501 (a)):

(a) Accredited investor shall mean any person who comes within any of the following categories...:

(1) [A]ny employee benefit plan within the meaning of [ERISA] if the investment decision is made by a plan 

fiduciary...

(5) Any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds 

$1,000,000...

(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent 

years or joint income with that person's spouse in excess of $300,000 in each of those years and has a 

reasonable expectation of reaching the same income level in the current year.
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providing limited carve-outs for platform providers13 (“Platform Provider Carve-Out”) and 

selection monitoring and assistance14 (“Selection and Monitoring Assistance Carve-Out”), we 

are concerned the Department has implied that the development of a platform, including the 

choice or restriction of investments generally available through the platform, is fiduciary in 

nature.

We agree that development and provision of a platform for investment is not a fiduciary 

activity. However, the limitations included in the current Platform Provider and Selection and 

Monitoring Assistance Carve-Outs suggest that platforms other than those of 401(k) 

recordkeepers somehow include fiduciary advice. We note individuals and plan fiduciaries 

would still have protection for the advice given specifically in connection with their retirement 

assets even if these Carve-Outs are explicitly broadened. As such, we recommend the 

Department broaden the Platform Provider and Selection and Monitoring Assistance Carve-Outs 

to cover any type of platform, including platforms provided to IRAs, Health Savings Accounts 

(“HSAs”), Coverdell Education Savings Accounts (“ESAs”) and any other type of platform 

provider.

ii. We Recommend Allowing the Provision of 

Objective, Publicly Available Investment Information.

We agree with the Department that service providers should be able to market their 

platforms and give objective investment information without such activity being considered 

investment advice. However, we believe Platform Provider and Selection and Monitoring 

Assistance Carve-Outs must better accommodate situations where neither party is expecting to 

be in a fiduciary relationship, but plan fiduciaries need additional investment information. For 

those reasons, we recommend the Platform Provider and Selection and Monitoring Assistance

Carve-Outs be available to any service provider – and not just recordkeepers – providing 

objective, publicly available investment information to plan fiduciaries. So long as the 

information is not coupled with a recommendation to make a particular plan investment choice 

and the service provider furnishes fee disclosures in accordance with 408(b)(2) and a statement 

that the provider is not offering investment advice as set forth in the Proposal, it should be clear 

that providing such information is not a fiduciary activity. 

iii. We Recommend Allowing Service Providers to 

Assist Plan Fiduciaries in Creating a Platform and 

Believe Clarity Is Needed Regarding Platform Marketing.

Many service providers offer a platform with “open architecture,” meaning plan fiduciaries 

are able to pick any investment option (such as a mutual fund or collective fund) that is 

compatible with the provider’s operating system. This provides plan fiduciaries with the greatest 

amount of flexibility to choose prudent investment options for the plan’s participants. Other 

service providers offer a short list of investment options in each investment category, or only 

proprietary investments. 

 13 80 Fed. Reg. at 21957-58 (§ 2510.3-21(b)(3)).

14 Id. at 21958 (§ 2510.3-21(b)(4)).
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Given the large number of mutual and collective funds to choose from, plan fiduciaries 

often need meaningful assistance in limiting the number of investment options in particular 

categories (e.g., large cap growth) when selecting or replacing investments. Often, even with 

objective, narrow criteria used to reduce the number of funds, there still can be dozens of funds 

that meet the criteria selected. Faced with such decisions, plan fiduciaries may request assistance 

in narrowing the possible investment options to a more manageable number of funds. A similar 

process may also occur during the initial sales process. Service providers often provide such 

assistance, fully disclosing the impact to their fees as required under the Department’s 408(b)(2) 

regulations.

In the absence of such assistance, plan fiduciaries may need to hire additional consultants 

to assist in analyzing fund selections, which would impose additional costs to the plan, likely 

borne by participants. Furthermore, service providers may begin restricting investment choices 

offered on their platforms, which limitation would be detrimental to retirement plan participants. 

We believe that by providing fee disclosures in accordance with 408(b)(2), along with the

proposed statement that the provider is not offering investment advice,

15 plan fiduciaries should 

be adequately informed of a service provider’s interests to permit service providers to continue to 

assist plan fiduciaries in narrowing the range of investment options for plan participants. Thus, 

we recommend the Platform Provider and Selection and Monitoring Assistance Carve-Outs be 

clarified to permit such functions, so long as disclosures are provided and specific 

recommendations are not made.

Additionally, as creating a platform has traditionally not been viewed as a fiduciary act, 

marketing the platform should not be limited to the creator of the platform, but rather 

intermediaries should be allowed to market a platform. Likewise, we recommend clarifying that 

a service provider may market to an intermediary plan fiduciary under the Platform Provider and 

Selection and Monitoring Assistance Carve-Outs rather than being limited to marketing to the 

plan itself. This is necessary now that there is an implication that marketing a platform would be 

fiduciary in nature if a service provider were to use an indirect distribution channel. We would 

also recommend clarifying that marketing of multiple platforms would not be considered 

fiduciary advice if retirement investors are segmented into investor types and marketed a 

corresponding platform (i.e., open architecture for large plans and a more limited platform for 

micro-plans).

D. The Financial Reports and Valuations Carve-Out Should Be Expanded.

Many service providers supply valuations for plan investments. In particular, many large, 

participant-directed plans offer unitized investment options (including, but not limited to, 

company stock funds).16 The service provider will perform calculations regarding the value of 

 15 80 Fed. Reg. at 21957-58 (§ 2510.3-21(b)(3)) (“if the person discloses in writing to the plan fiduciary that the 

person is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity”).

16 We note collective funds may have only one investor. We recommend the Department clarify the language of the 

Financial Reports and Valuations Carve-Out to ensure that it is available to such funds.
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such funds in order to calculate a net asset value to facilitate daily trading. As currently drafted, 

the carve-out for financial reports and valuations17 (“Financial Reports and Valuations CarveOut”) may not include these types of calculations.

Providing these calculations is mostly an administrative function using asset valuations 

provided by the market or another fiduciary. The Department rightly points out that this prong 

of covered advice does not require a recommendation. There is no particular call to action. As 

these calculations are not fiduciary in nature, the Financial Reports and Valuations Carve-Out 

should clearly include them.

E. The Investment Education Carve-Out Should Be Expanded.

i. We Recommend Permitting the 

Provision of Investment Information as Education.

In 1996, the Department published guidance outlining the types of information that would 

not be considered fiduciary investment advice. 18 In the nearly twenty years since, the 

Department has recognized that certain classes of information provided to participants of ERISA 

participant-directed account plans are more accurately considered investment education and have

not been treated as fiduciary investment advice. 

Under the Proposal, the Department is proposing to expand the scope of the exception so 

that it will now apply to IRAs and to ERISA plans that do not provide for participant-directed 

investments, and to cover communications to plan fiduciaries and IRA owners. However, the 

Department is proposing new conditions on the 1996 guidance under the carve-out for 

investment education19 (“Investment Education Carve-Out”) that materially dilute the positive 

effect of extending the guidance to cover advice related to IRA plans. 

While we applaud the Department’s expansion of its 1996 guidance regarding financial 

education to IRAs and other ERISA plans, the limiting conditions of Investment Education 

Carve-Out effectively undercut the utility of the guidance:

 

 First, the Investment Education Carve-Out adds a specific condition that the information 

cannot include any advice or recommendations concerning specific investment products, 

investment managers or the value of investments. 

 Second, asset allocation models cannot include any specific investment alternatives offered 

under the plan, and interactive investment materials can include specific plan investment 

alternatives only if such alternatives are specifically selected by the participant. Thus, 

 17 80 Fed. Reg. at 21958 (§ 2510.3-21(b)(5)).

18 See Dep’t of Labor, Pension and Welfare Benefits Admin., Interpretive Bulletin 96-1; Participant Investment 

Education; Final Rule, 61 Fed. Reg. 29586 (June 11, 1996) (codified at 29 C.F.R. pt. 2509) available at:

http://www.gpo.gov/fdsys/pkg/FR-1996-06-11/pdf/96-14093.pdf.

19 80 Fed. Reg. at 21958 (§ 2510.3-21(b)(6)).
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educational materials that include asset allocation models or interactive investment tools 

cannot identify specific investment alternatives available under the plan for those materials 

to come within the Investment Education Carve-Out. 

We recommend the Investment Education Carve-Out be modified to more closely resemble the 

Department’s 1996 guidance and that the Carve-Out more specifically cover the situations 

described below.

Plan sponsors and administrators rely heavily on service providers to help operate their 

retirement plans. In an effort to assist plan participants with retirement preparedness, many plan 

administrators enlist the assistance of their service providers to help educate participants 

regarding how participants’ investment decisions may affect their retirement plan accounts. For 

example, plan administrators may design (or approve a service provider’s) mailers reminding 

participants of the benefits of diversification if they are heavily invested in one particular asset 

class, including employer securities. Generally, such educational efforts are targeted toward 

those participants whose selected investments indicate they would benefit from such education.20 

As currently drafted, such informational assistance could be considered investment advice 

under the proposed regulation. Some of these communications may include references to 

specific investment options available in the plan, which may exclude them from the Investment 

Education Carve-Out. Furthermore, if such information is only sent to certain participants, it 

could be sufficiently “individualized” or “specifically directed to” participants to be considered 

investment advice. Most service providers would be unwilling to take on fiduciary status based 

on the distribution of such information. Plan sponsors and administrators would have similar 

concerns and participants would lose access to valuable information regarding their investment 

decisions. Therefore, we recommend the Department clarify the regulation so that such

generalized investment information would not be considered investment advice.

The revised description of investment education raises other issues as well. As previously 

discussed, under the Proposal, a financial professional is only permitted to provide a retirement 

investor with generic education materials and asset allocation information (without mention of 

any specific investment products or services) to avoid fiduciary status. This is especially 

problematic in the retirement plan space. Such plans have a set of investment options available 

that have been selected by the plan sponsor. The inability of a financial professional to provide 

basic information about these investments, what they are and how they are priced, would seem 

counter-productive to helping educate investors. 

 20 While sending the information to all plan participants may make the information no longer individualized or 

specifically directed to, that would (1) confuse many participants for whom the information is not relevant and (2) 

involve additional expense, which would likely be charged against participants’ accounts. For example, mailers 

may be sent to participants who have more than 20% of their account invested in employer securities, as mentioned 

on participant statements. Another example would be sending mailers to participants under age 30 who have all 

their account balance invested in a principal preservation vehicle, informing them of the risk that inflation may pose 

to retirement income. A third example could be a mailers discussing “target date” funds to individuals who have 

invested their account balances in multiple target date funds (of the same series, but with different target dates), 

which may indicate such participants are unclear on how target date funds are intended to operate.
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In addition, the limitation on the provision of investment examples for asset allocation 

models is too severe. The limitation relegates discussions regarding investment alternatives to 

esoteric conversations and prohibits the provision of plan-specific information. We believe a 

financial professional should be able to discuss what types of investments fall into various asset 

classes (e.g., providing objective information on mutual funds that may satisfy the investor’s 

needs), without being considered a fiduciary, so long as he or she is not making a 

recommendation as to a particular investment. 

ii. We Recommend Rollover Assistance Be Considered Education.

Retirement plan service providers also assist plan participants when the participants have 

terminated employment and are deciding what to do with their retirement plan benefits. Such 

services typically are provided through call centers that provide information to plan participants 

regarding the plan’s distribution options. Our experience has been that many participants call 

because they are unsure about their options and the related financial or tax implications. Service 

provider call centers often provide critical information to such participants, including whether 

the participant can leave the funds in the plan, take a cash distribution, or rollover the funds to 

another retirement plan or IRA.

As recognized by the Department, rolling over the account balance can be a good option 

for participants as it preserves the tax-deferred nature of their retirement benefits. Our 

experience has shown that participants who are more informed of their distribution options are 

more likely to retain their retirement benefits instead of cashing them out. The Department has 

noted that it is generally in the participants’ best interest not to take a pre-retirement distribution.

While the Department has clarified that distribution education is not investment advice, the 

Department should understand that participants often have additional questions after receiving an 

explanation of their distribution options. Participants often ask if the service provider or its 

affiliates offer IRAs. Given that the BIC Exemption may not cover rollovers by its terms, and 

that it would be difficult, if not impossible, to implement the BIC Exemption in a call center 

setting, service providers will not be able to answer participants’ reasonable inquiries for fear 

that the discussion would be considered fiduciary investment advice. 

The result will be that participants, who reasonably request information about a service 

provider or an affiliate’s products, will be left without the information they need. In addition, if 

participants ask to be connected to an affiliate, such as an affiliated call center, that offers such 

products (e.g., bank IRAs, direct-to-fund IRAs, self-directed IRAs or advised IRA brokerage 

accounts) to obtain information about the products offered, they will not receive this support. 

For these reasons, we recommend the Department clarify that the provision of general 

information about the products and services offered is not investment advice if it is part of a 

discussion that is otherwise educational in nature. If a financial institution is providing 

information about plan distribution options in a manner that would be considered investment 

education under the Proposal, the financial institution should be able to mention that it offers 
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IRAs or other products so long as it does not recommend such products or that the individual 

take a particular action with respect to plan assets.21 

F. HSAs and ESAs – non-ERISA accounts – Should Be Carved-Out of the Proposal.

The Department requested comment as to whether it is appropriate to cover and treat HSAs 

and ESAs (non-ERISA accounts) under the Proposal in a manner similar to IRAs with regard to 

both coverage and applicable carve-outs. These non-ERISA accounts serve entirely different 

purposes than the covered ERISA accounts and plans identified in the Proposal and should 

therefore not be covered.

i. HSAs Are Used to Pay for Health Care Expenses and

Cannot Receive Rollovers from Traditional ERISA Plans.

The focus of the Proposal is on retirement savings vehicles like qualified pension plans and 

IRAs. In including HSAs within the definition of IRAs, the Department observes that HSAs can 

be used as “long term savings vehicles for retiree health care expenses.”22 Although this is 

possible, HSAs are much different than IRAs. To make or receive HSA contributions, 

individuals must meet eligibility criteria, including being enrolled in a high-deductible health 

plan (“HDHP”). HSAs permit individuals with HDHP coverage to save money on a pre-tax 

basis to pay for medical expenses incurred before their deductible is met. Thus, while IRAs are 

designed to encourage the accumulation of retirement assets with significant penalties for 

withdrawals, HSAs are primarily designed for the payment of current medical and other 

healthcare expenses. 

Our experience is that HSA balances generally are deposited and withdrawn on a regular 

basis (using, for example, a debit card) and carry relatively small balances. The average balance 

of our account owners is $3,062 (as of April 2015). For the Wells Fargo HSA product, 

individuals have to accumulate at least $1,000.00 in a deposit account before investment in a 

mutual fund is allowed. In fact, 90% of Wells Fargo HSA account owners keep their money in a 

deposit account and do not invest their HSA balances (as of April 2015). 

Rollovers to HSAs are also very limited. HSAs can only receive rollovers from other 

HSAs, Archer MSAs and IRAs. Further, the ability to “roll” funds from an IRA is subject to 

maximum annual HSA contribution limits of roughly $6,650 (for family coverage) and is limited 

to a “once in a lifetime” transfer of funds. Thus, the Department’s concern for protecting funds 

rolled from traditional ERISA plans into IRAs does not apply to HSAs.

In addition, HSA owners are subject to strict oversight, including IRS audit, regarding the 

use of their accounts. The imposition of additional regulatory restrictions on top of the current 

 21 FINRA Regulatory Notice 13-45 sets forth a list of factors that should be considered by an investor in making a 

rollover decision. The Investment Education Carve-Out could also accommodate the presentation of these factors in 

a non-biased fashion. See FINRA, Regulatory Notice 13-45, Rollovers to Individual Retirement Accounts (Dec. 

2013), at 2-3, available at: https://www.finra.org/sites/default/files/NoticeDocument/p418695.pdf. 

22 80 Fed. Reg. at 21947.
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extensive regulatory structure is unnecessary. For these reasons, we believe that HSAs should 

not be covered under the final rule. If, however, HSAs are included in the final rule, we 

recommend the following amendments to the Proposal: 

 Clarify that the Platform Provider Carve-Out Applies to HSAs. All HSAs should be 

included under the Platform Provider Carve-Out. HSAs differ from IRAs in that 

employers are frequently involved in the selection of an HSA provider for their employee 

population,23 often using an RFP process to evaluate potential providers. Employers may 

select a single HSA provider for their employees for purposes of facilitating HSA 

contributions without triggering ERISA, as long as the employer does not restrict the 

employees’ ability to move their balances to another HSA and meet other criteria 

established by the Department.24 Although employers do not select an HSA provider in a 

fiduciary capacity, they do serve as an independent entity interacting with the provider to 

ensure that an appropriate product is offered to the account owners. 

The investment platform we offer for HSAs is a limited selection of mutual funds, 

including proprietary and nonproprietary funds. We are able to offer this simple platform 

today without charging separate fees for investing or transactions because its management 

is administratively straightforward. An account owner must accumulate at least $1,000.00 

in a deposit account before investment in the platform is allowed and the platform is the 

same whether or not Wells Fargo is selected by the HSA owner’s employer or an 

individual who sets up an HSA outside of the employer relationship or who de-affiliates 

with an employer. Given that only roughly 10% of account owners invest their HSA 

funds, it would be difficult to justify the cost of offering different products to different 

segments of the population. As such, we believe the Platform Provider Carve-Out should 

include all HSAs so that the same rules apply to all segments of the account owner 

population.

 Clarify that the Investment Education Carve-Out applies to discussions of distributions 

from HSAs for qualified medical expenses. At present, the Investment Education CarveOut does not address certain aspects of HSA products that are different in nature from 

ERISA plans and IRAs. For example, the Investment Education Carve-Out does not 

include the provision of information regarding “qualified medical expenses.”25 In 

addition, HSAs are transactional accounts, and individuals need information on how to 

access their funds for medical expenses, including use of the associated debit card. Thus, 

we believe informational communications to account owners regarding how to take 

distributions from their HSA should be considered investment education. 

 23 In 2015, 72% percent of accounts at Wells Fargo were affiliated with an employer.

24 See, e.g., Dep’t of Labor, Field Assistance Bulletin No. 2006-02, Health Savings Accounts – ERISA Q&As (Oct. 

27, 2006), available at: http://www.dol.gov/ebsa/regs/fab_2006-2.html; Dep’t of Labor, Field Assistance Bulletin 

No. 2004-01, Health Savings Accounts (Apr. 7, 2004), available at: http://www.dol.gov/ebsa/regs/

fab_2004-1.html.

25 26 U.S.C. § 213(d).
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ii. ESAs Are Used to Pay for Education Expenses and

Cannot Receive Rollovers from Traditional ERISA Plans.

Like HSAs, ESAs are very different in nature than IRAs. ESAs are savings accounts

designed exclusively for funding education expenses for a designated beneficiary who is under 

age 18 or is a special needs beneficiary. The annual contribution limit is $2,000 for each 

designated beneficiary, no matter how many ESAs are set up for that beneficiary. 

Traditional ERISA plan assets are not eligible to be transferred or rolled into an ESA. 

Assets can only be rolled over from one ESA to another. Generally, funds must be distributed 

when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. 

Thus, the Department’s concern for protecting funds rolled from traditional ERISA plans into 

IRAs also does not apply to ESAs.

Considering the limited funding and generally short life of the account, additional 

regulatory restrictions are unnecessary. Thus, we believe that including ESAs in the final rule 

would not comport with the Proposal’s stated objectives. If, however, ESAs continue to be 

included in the Proposal, we recommend communications to accountholders regarding ESArelated regulations and key product features should be included in the Investment Education 

Carve-Out. In addition, the identification of specific investment products or alternatives 

available for an ESA should also be permitted. 

II. THE BEST INTEREST CONTRACT 

EXEMPTION IS IMPRACTICABLE AS PROPOSED.

The Department’s expansion of the definition of fiduciary investment advice has the 

potential to not only disrupt the ability of retirement investors to receive appropriate investment 

information, but to restrict the provision of investment advice (even if the advice is in the 

investor’s best interest) and to limit the freedom of investors to choose among varying service 

and fee models. This is because the prohibited transaction rules prohibit fiduciaries from 

providing advice if the advice could affect the compensation of the fiduciary. Consequently, 

many of the advice models most economical for smaller accounts and small businesses would 

become prohibited under the Proposal. 

To lessen the harsh effects of the proscriptions contained in ERISA’s prohibited 

transaction provisions, the Proposal includes a Best Interest Contract Exemption (the “BIC 

Exemption”), which is intended to “preserve beneficial business models for delivery of 

investment advice”26 and which the Department believes will “permit firms to continue common 

fee and compensation practices, as long as they are willing to adhere to basic standards aimed at 

ensuring their advice is in the best interest of their customers.”27 

 26 80 Fed. Reg. at 21929.

27 Id.
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We believe the Department’s objective to craft an exemption providing certain retirement 

investors and financial professionals with the flexibility to determine what service and fee 

models are appropriate for a particular investor is the right course. However, the BIC Exemption 

as currently designed is an unviable solution with overly complex requirements. Below we 

recommend specific changes to the BIC Exemption that attempt to address these practical 

problems, protect investors and fulfill the stated purpose of the Exemption.

A. The Proposed “Written Contract” Is Not Operationally Feasible.

We understand that the BIC Exemption’s “written contract”28 represents the Department’s 

desire to have a binding commitment from financial institutions that they will live up to the 

Department’s “best interest” standard. As proposed, however, the contract presents a number of 

challenges that essentially undercut the BIC Exemption’s purpose.

i. We Recommend the Contract Only Be Executed 

After a Prospective Customer Becomes a Customer.

A plan, participant, beneficiary or IRA owner should not be required to enter into a 

contract with a financial institution or financial professional prior to deciding whether to hire that 

financial institution or financial professional, particularly when any investment advice will be 

subject to the “best interest” standard. To facilitate the exchange of information between 

financial institution, financial professional and prospective customer, any contract should be 

executed at or shortly after the time of account opening. At the most basic level, a contract

establishes the agreement that parties have made and to fix their rights and duties in accordance 

with that agreement. Consequently, it makes sense that when establishing an account and 

depositing funds with a financial institution or financial professional that the parties execute a 

document detailing the terms and conditions of their relationship. 

Under the terms of the BIC Exemption, the Department requires that a BIC Exemption 

contract be executed before a retirement investor can obtain basic investment information from a 

financial institution or financial professional that will permit the investor to make an informed 

decision on whether to hire the financial professional or purchase products or services from the 

financial institution. Requiring that a consumer execute a contract even before being presented 

with a proposal or at least a general description of the products and services offered, will be 

disconcerting and may inhibit a consumer’s willingness to shop for retirement investment 

services.

The simple fix is to include the BIC Exemption contract as part of new account opening 

(“NAO”) documentation which would fulfill the Department’s policy objectives while permitting 

retirement investors to gather the information they need about investment options, products or 

services to make an informed decision. If a prospective client does decide to purchase products 

or services from or open an account and deposit funds with the financial institution, the client 

will receive the fiduciary protections sought by the Department prior to the execution of any 

transactions.

 28 80 Fed. Reg. at 21984 (§ II(a)).
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The execution of the BIC contract as part of the NAO documents is also consistent with 

current commercial practices and regulatory requirements. For example, as noted earlier, 

FINRA’s guidance to the Suitability Rule provides assistance in determining when its 

requirements apply. The Suitability Rule applies to a “customer” and FINRA has indicated (for 

purposes of the Suitability Rule) that a “customer” is a person who opens an account at a brokerdealer or purchases a security for which the broker-dealer receives or will receive compensation 

– directly or indirectly – even if the security is not held at the broker-dealer. 29 

The Suitability Rule also applies to a “potential investor” who then becomes a “customer.” 

Thus, the Suitability Rule’s investor protections extend to prospective clients if that individual 

executes the transaction through the broker-dealer that made the recommendation or if the 

broker-dealer receives or will receive compensation as a result of the transaction.30 

Conversely, the Suitability Rule does not apply to a recommendation made to a 

prospective client if the prospective client does not act on the recommendation or executes the 

recommended transaction away from the broker-dealer without the broker-dealer receiving 

compensation for the trade.31 However, this does not mean that broker-dealers are not 

responsible for such recommendations, as broker-dealers are subject to stringent conduct 

standards even when dealing with prospective clients.32

By contrast, the BIC Exemption would create a contractual relationship between a 

retirement investor and a financial professional even in instances where, for example, the 

retirement investor chooses to work with another financial professional. Thus, there could be 

more than one fiduciary and questions could arise regarding which fiduciary has liability for 

recommendations made to the investor. 

Thus, we recommend, consistent with current regulations applicable to broker-dealers, the 

BIC Exemption be modified so that any required contract need only be executed concurrent with 

or after a prospective client becomes a client. The BIC Exemption contract should simply be 

included as part of the NAO documentation. The execution of the contract with the NAO 

documentation will provide retirement investors with “best interest” protections, while providing 

retirement investors with unfettered access to financial professionals and needed retirement 

products and services. 

 29 See FINRA, Regulatory Notice 12-55, at 2 (FAQ 6(a)).

30 See id. (FAQ 6(b)).

31 See id. 

32 For example, FINRA Rule 2010 requires that broker-dealers observe high standards of commercial honor and just 

and equitable principles of trade and Rule 2020 prohibits broker-dealers from effecting any transaction in, or 

inducing the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or 

contrivance. See FINRA, Rule 2010, Standards of Commercial Honor and Principles of Trade, available at: 

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=5504 and FINRA, Rule 2020, Use 

of Manipulative, Deceptive or Other Fraudulent Devices, available at: http://finra.complinet.com/

en/display/display_main.html?rbid=2403&element_id=5513.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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17

ii. We Recommend Any Required Repapering of 

Current Client Agreements Be Effectuated Via Notice.

Similarly, requiring the execution of tri-party contracts for millions of existing contracts, 

within eight months or even twelve months, is not feasible and would be extremely costly. For 

example, Wells Fargo Advisors (“WFA”) incurred costs of over $4 million to implement new 

account documentation requirements under FINRA Rule 2090.33 Moreover, only about 25% of 

WFA brokerage clients currently receive account documents via electronic delivery. Therefore, 

the costs for obtaining new tri-party contracts for millions of accounts would be extraordinary 

and may not be economical for smaller balance accounts. 

In addition, not all clients diligently sign and return paperwork – either electronically or 

through the mail, which means that only a fraction of retirement investors may affirmatively 

enter into the contract envisioned by the Department in the proposed implementation timeframe. 

Thus, for existing clients, we recommend the Department confirm that the BIC Exemption is 

available if existing contracts are amended consistent with the contract’s amendment provisions, 

including, without limitation, provisions authorizing amendment by notice or negative consent. 

Permitting financial institutions to amend existing contracts by notification would be efficient 

and would allow them to be in compliance with the contract requirements under the BIC 

Exemption within a relatively short period of time. We estimate it could be completed within 

twenty-four months.

Utilizing a notice amendment process alleviates the practical issue of how to address 

instances where the retirement investor does not sign the contract. Should the Department 

require affirmative execution of BIC Exemption contracts for existing retirement investors, there 

is not a good service alternative for the potential “non-responders.” Moreover, some retirement 

account custodians and trustees may feel obligated to resign from a “non-responder” account 

which would result in a distribution to the retirement investor, leading to more issues and 

concerns. Consequently, should there be a requirement to establish a new contractual 

relationship for existing clients, we recommend it be done though a negative consent process. 

iii. We Recommend the BIC Exemption Not Require 

Actual Signatures in Connection with the Contract.

The BIC Exemption appears to contemplate that the contract will be signed by the financial 

institution, financial professional and the client. As part of NAO procedures, client agreements 

typically only require a client signature, which is sufficient to create a legally enforceable right 

on the part of the client. We believe the requirement that the financial institution sign the 

contract will raise operational issues, while not enhancing responsibility for contract terms. We 

also believe the requirement that financial professionals sign the contract will result in numerous 

practical problems. For example, financial institutions with multiple service models may provide 

client services through multiple financial professionals. In addition, it may not be possible to 

 33 FINRA, Rule 2090, Know Your Client Rule (adopted by SR-FINRA-2010-039 and amended by SR-FINRA-2011-

016 effective July 9, 2012), available at: http://finra.complinet.com/en/display/

display_main.html?rbid=2403&element_id=9858.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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18

identify the impacted financial professionals in advance of contract execution and the financial 

professionals servicing a particular client may change over time. We also note that financial 

professionals are agents of their respective financial institutions and as such their signatures are 

not necessary for the financial institution to enforce its policies and procedures against them. 

Therefore, we recommend financial professional signatures should not be required so long as the 

financial institution remains bound by the terms of the contract and the financial institution 

implements policies and procedures to hold the financial professional accountable for any breach 

of contract terms. 

B. The Terms Used in the “Impartial Conduct 

Standards” Should Be Clarified to Ensure Investor Choice. 

A source of confusion is that the “Impartial Conduct Standards” do not exactly mirror 

related ERISA provisions. These standards should be modified to use the exact language of 

ERISA Section 404 or, alternatively, be inapplicable to ERISA covered plans.34 In order to 

ensure investor choice is retained, we recommend the Department provide clarity regarding how 

the “Impartial Conduct Standards”35 permit common compensation structures “that, in the 

absence of an exemption, would not be permitted.”36 This includes providing examples of how 

to apply the “Impartial Conduct Standards” to similar products with different compensation 

structures, payment models and proprietary products. 

i. We Recommend Retirement Investors 

Have the Ability to Choose Prudent Products.

In order to make a recommendation that is in a retirement investor’s “best interest,” a 

financial professional should not be restricted to only recommending the least expensive product 

or strategy. A prudent investment product is not necessarily the lowest cost alternative. As such, 

there should be no “low fee exemption” (as the Department indicated it is exploring in the 

Proposal),37 nor bias for passive products, because investment cost should be only one factor in 

determining what product or service is in the investor’s best interest.

The “Impartial Conduct Standards” allow financial institutions and financial professionals 

(and their affiliates) to receive “reasonable compensation” under certain conditions.38 The 

Department should confirm that this condition does not require financial professionals and 

financial institutions to recommend the lowest cost alternative. In this respect, the Department 

has long recognized that a fiduciary need not select the lowest-cost service provider so long as 

the compensation or fees paid to the service provider are determined to be reasonable in light of 

 34 29 U.S.C. § 1104.

35 80 Fed. Reg. at 21984 (§ II(c)).

36 Id. at 21961.

37 See id. at 21977-80. Furthermore, even if we wanted to provide substantive comments on this undefined proposal, 

we do not have adequate information to do so.

38 Id. at 21984 (§ II(c)(2)).
 Appendix A (Sept. 24, 2015) 

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19

the particular facts and circumstances.39 The BIC Exemption clearly contemplates a wide 

variety of indirect compensation. We believe this provision should not prohibit the financial 

institution from receiving different types and different amounts of fees from different sources 

with respect to services provided in connection with a plan. 

The BIC Exemption also requires financial institutions to contractually warrant they have 

adopted written policies and procedures that are reasonably designed to “mitigate the impact of 

material conflicts of interest” that exist with the provision of investment advice and ensure 

adherence to the “Impartial Conduct Standards.”40 While the Department stated in the preamble 

to the BIC Exemption that a “level-fee” structure is not required to mitigate “material conflicts of 

interest,” the Department provided five examples of permissible compensation structures, all of 

which are variations of level-fee arrangements.41 Thus, recommending an investment product 

where a level-fee arrangement is not in effect could be deemed an unacceptable contractual 

liability risk by financial institutions in view of the examples that the Department has provided. 

As an example of a situation where a level-fee is not paid, a financial professional may 

recommend Fund A – which has historically outperformed against its benchmark – to a 

retirement investor instead of Fund B – which has historically underperformed against its 

benchmark. If Fund A pays more in compensation to “the Adviser, Financial Institution, or any 

Affiliate and Related Entity”42 than Fund B, we are concerned the investor could seek a claim for 

damages simply because, despite the stronger performance of Fund A, the investor believes the 

financial professional was not acting without regard to his or her own financial interests because 

of the greater compensation paid to the financial professional by Fund A. The possibility of this 

claim, therefore, would make financial professionals reluctant to recommend an investment in 

Fund A, even where Fund A may be the more appropriate investment. We request that the 

Department provide examples of fee arrangements other than level-fee structures to illustrate that 

a higher compensation level does not result in a per se violation of the “best interest” standard or 

required contractual warranties. 

The Department should also confirm that merely recommending products that are not the 

lowest cost alternative would not, in and of itself, “tend to encourage individual Advisors to 

make recommendations that are not in the Best Interest of the Retirement Investor” in violation 

of the proposed warranties. 43 FINRA Regulatory Notice 12-25 (“Notice 12-25”) provides 

guidance as to the appropriate factors to be considered in making a recommendation in the best 

 39 See, e.g., Dep’t of Labor, Employee Benefits Security Admin., Reasonable Contract or Arrangement Under 

Section 408(b)(2) – Fee Disclosure, 72 Fed. Reg. 70988, at 70993 (proposed Dec. 13, 2007) (to be codified at 29 

C.F.R. pt. 2550) (“A responsible plan fiduciary should not consider any one factor, including the fees or 

compensation to be paid to the service provider, to the exclusion of other factors.”), available at:

http://www.gpo.gov/fdsys/pkg/FR-2007-12-13/pdf/E7-24064.pdf. 

40 80 Fed. Reg. at 21984 (§ II(d)(2)).

41 Id. at 21971.

42 Id. at 21984 (§ II(c)(1)).

43 Id. (§ II(d)(4)).
 Appendix A (Sept. 24, 2015) 

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20

interests of the client. Notice 12-25 clarifies aspects of FINRA’s Suitability Rule, and states 

with respect to product or strategy costs that: 

The requirement that a broker’s recommendation must be consistent with the 

customer’s best interests does not obligate a broker to recommend the “least 

expensive” security or investment strategy...as long as the recommendation is 

suitable and the broker is not placing his or her interests ahead of the customer’s 

interests. ... The cost associated with a recommendation...ordinarily is only one of 

many important factors to consider when determining whether the subject security or 

investment strategy involving a security or securities is suitable.

The customer’s investment profile, for example, is critical to the assessment, as 

are a host of product- or strategy-related factors in addition to cost, such as the 

product’s or strategy’s investment objectives, characteristics (including any special 

or unusual features), liquidity, risks and potential benefits, volatility and likely 

performance in a variety of market and economic conditions. These are all important 

considerations in analyzing the suitability of a particular recommendation, which is 

why the suitability rule and the concept that a broker’s recommendation must be 

consistent with the customer’s best interests are inextricably intertwined.44

We recommend the Department adopt this standard. The inclusion of this standard would 

permit financial professionals to recommend a product or service that is in the investor’s best 

interest, whether it is the least expensive option or not, and will allow transaction-based accounts 

to continue to be viable options for client accounts. 

ii. We Recommend Retirement Investors Have 

the Freedom to Choose Appropriate Payment Models.

The interaction between the Proposal’s “Impartial Conduct Standards” and the BIC 

Exemption’s conflict mitigation provisions appear to restrict an investor’s choice regarding 

advice models if the alternatives involve differential compensation received by the financial 

institution or financial professional.

45 The ability to choose the most economical payment 

models is critically important for smaller balance accounts. Many clients, retirement or 

otherwise, choose a “pay as you go” model where clients incur charges when a transaction 

occurs while higher income clients tend to have a mix of commission based accounts and 

advisory or asset fee based accounts. 

We have observed in households served by our WFA affiliate that as wealth increases, a 

greater percentage of investors elect a “hybrid model” of investing in which some of their assets 

are held in commission-based brokerage accounts and an increasing percentage of assets shifts 

toward fee-based advisory accounts. Among WFA households maintaining at least one advisory 

 44 See FINRA, Regulatory Notice 12-25, Suitability (May 2012), at 3 (FAQ 1) (emphasis added).

45 Retirement investors currently have several choices of how to pay for service (1) a one-time fee for advice, (2) an 

ongoing fee for continuing advice, (3) fee for transactions, including incidental to advice and (4) fee for transactions 

effected without receiving any personalized advice.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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21

account, nearly two thirds also have a brokerage account. Moreover, WFA households with both 

brokerage and advisory accounts hold nearly four times the assets of households with only a 

brokerage account. 

Similarly, when reviewing the effects of simply extending the Investment Advisers Act of 

1940 (the “Advisers Act”) to cover client activity with broker-dealers the SEC stated:

If, in response to the elimination of the broker-dealer exclusion, broker-dealers 

elected to convert their brokerage accounts from commission-based accounts to feebased accounts, certain retail customers might face increased costs, and consequently 

the profitability of their investment decisions could be eroded, especially accounts 

that are not actively traded, e.g., fee-based accounts that trade so infrequently that 

they would have incurred lower costs for the investor had the accounts been 

commission-based. This practice is commonly referred to as “reverse churning” or 

“underutilization.”46

Consequently, the Department must ensure that investors retain the ability to choose the 

appropriate fee and advice model for their particular situation. We request the Department 

clarify how the requirements of the BIC Exemption can be satisfied through a commission-based 

account. As we note above, the only compliant examples provided by the Department in the 

Proposal were level-fee options. This is particularly important in light of the fact that level-fee 

accounts may not be the best option for investors with limited trading activity. 

iii. We Recommend Providing Guidance on How Financial Professionals Can 

Recommend Proprietary Products Under the “Impartial Conduct Standards.” 

The impact of the BIC Exemption on proprietary products47 is unclear. We recommend 

the Department clarify that as long as a proprietary product is in the best interest of the investor

and the cost is reasonable compared to other like products, the investor should not be restricted 

from using the product. To do so, we recommend the Department either eliminate the phrase 

“without regard to the financial or other interests of the Adviser, Financial Institution or any 

Affiliate, Related Entity or other party” 48 or replace it with “despite the financial or other 

interests of the Adviser, Financial Institution or any Affiliate, Related Entity or other party.” We 

believe that this better captures the intent of the Department which has a history of permitting 

conflicted fiduciaries to continue to act, subject to conditions, through its administrative 

exemption process. Should it remain unaltered, the Department must provide guidance on how 

this provision can be applied in a differential compensation environment and where proprietary 

products may be available. 

 46 SEC, Study on Investment Advisers and Broker-Dealers (Jan. 2011), at 152-153, available at:

https://www.sec.gov/news/studies/2011/913studyfinal.pdf. 

47 Virtually all major broker-dealers have proprietary funds. Typically proprietary products are developed, in part, 

because a financial institution sees a client need and believes it can satisfy it. 

48 80 Fed. Reg. at 21984 (§ II(c)(1)).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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22

Furthermore, if sales of proprietary funds do indeed have different standards applicable to 

them under the Proposal, we believe the final rule will have to address many nuances 

surrounding proprietary status, which may change over time. For example, many existing Wells 

Fargo proprietary funds held by our clients date from a period when they were acquired from a 

predecessor firm. They are proprietary today but were not proprietary when purchased. 

Conversely, some financial institutions have divested their asset management businesses and a 

fund that was proprietary may become non-proprietary. On a smaller scale, when a financial 

professional moves from one financial institution to another, he or she typically keeps existing 

clients in existing investments and those investments may move between proprietary and nonproprietary status. We believe the fact that “proprietary” status is transient is one more reason 

not to adopt rules that place extra burdens on sales of proprietary funds.

C. The Definition of “Asset” Unnecessarily Limits Investor Choice.

The BIC Exemption covers the receipt of compensation for only the limited list of 

approved investment products and securities included in the definition of “Asset.” 49 This 

definition excludes numerous investments that investors make in IRAs, including, for example, 

limited partnerships, hedge funds, private equity funds, and covered calls, and may exclude 

future product innovations unless it is frequently updated. In excluding these investments, the 

Proposal fails to recognize the value that other types of investments, such as alternative 

investments, can add to investor retirement portfolios. Furthermore, the definition of Asset does 

not appear to cover the recommendation of services, such as advisory or discretionary 

management programs.

i. We Believe the Recommendation of a Firm 

Sponsored Advisory Program Must Be Clearly Permitted.

We are unclear whether a financial professional may refer or recommend retirement 

investors to an affiliated or unaffiliated investment adviser or proprietary investment advisory 

product under the BIC Exemption. We understand the Department did not intend to restrict 

access to such services; if so, the Department should eliminate the “Asset” list, or revise the list 

to include such services.50 Moreover, we believe the sale of any product or service subject to an 

existing exemption, or otherwise compliant, should be excluded from the Proposal or subject 

only to the “best interest” standard requirement of the BIC Exemption.

ii. We Recommend Eliminating the “Asset” List.

Financial professionals and retirement investors should be permitted to make judgments 

about appropriate investments. The Department should not substitute its judgment for that of a 

fiduciary, concerning product and service selections. As all recommendations will be subject to 

 49 80 Fed. Reg. at 21987 (§ VIII(c)).

50 We ask that the Department confirm that to the extent that the recommendation of a related investment adviser 

does not result in third-party compensation to the recommender and the advisory program itself does not result in 

differential compensation to the financial professional, there should be no need for compliance with BIC Exemption 

for the initial recommendation of the advisory program. 
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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23

a “best interest” standard, there is no need to place limits on investments beyond those Congress 

has already established.51 The “best interest” standard requires investment advice be “based on 

the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement 

Investor.” This standard makes a “one-size fits all” limitation on investor choice of products and 

services unnecessary, as financial professionals are already restricted to recommending only 

those products or services that are in their clients’ best interest. 

Finally, a limited definition of “Asset” also does not allow for the introduction of 

innovative products. For example, no one could have predicted the development and tremendous 

growth of exchange traded funds (“ETFs”) – which are included in the current definition of 

“Asset” – over the past decade and a half. Therefore, we recommend replacing the term “Asset” 

with the phrase “securities or other property” in order to eliminate the concept of a permitted list 

of investments.

iii. We Recommend Annuities Continue to Be Offered Under PTE 84-24.

Annuities are commonly used by retirement investors in their IRAs as a source of regular 

income. However, the Department has proposed modification or elimination of existing 

prohibited transaction exemptions (“PTE”) upon which the insurance industry currently relies 

that will present significant challenges to their continued use. In particular, PTE 84-24 would be 

revised to exclude advice about variable annuities and other registered products to IRA owners,

which advice would now have to meet the requirements of the BIC Exemption.52 Financial 

professionals and institutions will be challenged to offer annuities under the BIC Exemption, 

however, because of the investment platforms that are built in to such products. As such, we 

recommend, due to variable annuities’ unique insurance component, they should continue to be 

offered under PTE 84-24.

iv. We Recommend Eliminating Limits on Sophisticated Investor Choice.

Should the Department choose to retain its narrow definition of “Asset,” we recommend 

the definition not apply to retirement investors that can be designated as accredited retail or

institutional investors. We are making a similar recommendation with respect to the Seller’s 

Carve-Out in Section I.B.ii. The apparent rationale behind the definition of “Asset” was to 

capture the most common IRA investments. This limitation should not apply to more 

sophisticated investors who are familiar with the potential risks of less common investment 

types. Such an approach would also be consistent with FINRA’s Suitability Rule, which 

includes a carve-out from the customer-specific suitability obligation for institutional accounts.53

 51 See 26 U.S.C. § 408.

52 80 Fed. Reg. at 22010-22020.

53 See FINRA, Rule 2111(b). “A member or associated person fulfills the customer-specific suitability obligation 

for an institutional account...if (1) the member or associated person has a reasonable basis to believe that the 

institutional customer is capable of evaluating investment risks independently...and (2) the institutional customer 

affirmatively indicates that it is exercising independent judgment in evaluating the member's or associated person's 

recommendations.” 
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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24

v. We Recommend the BIC Exemption Provide Limited 

Compliance Requirements for Products and Services 

that Address Conflict Issues Under Existing Regulations.

Many financial institutions have developed products and services – both discretionary and 

non-discretionary – under which they act as a fiduciary today. These products and services were 

developed to comply with existing exemptions or are otherwise structured to avoid conflict and 

prohibited transaction issues. We believe that the most appropriate solution for these types of 

products and services is to make clear that the sale of such a product or service is not 

“investment advice.” However, to the extent that such a sale might be considered a 

recommendation that is advice, we recommend the BIC Exemption provide relief for the 

recommendation and the associated compliance conditions be limited to contractual provisions 

implementing the “best interest” standard of care. We believe the other proposed requirements 

for the BIC Exemption, such as the list of permissible “Assets” and lengthy disclosures, do not 

provide additional protections for investors when the product or service is already compliant 

with ERISA and the prohibited transaction restrictions of the Internal Revenue Code.

D. The Proposed Disclosures Fail to Leverage 

Existing Disclosures and Will Not Be Effective.

We support the need for effective disclosures as part of a well-designed best-interest 

standard, and encourage the Department to craft a disclosure regime that advances investor 

protection while avoiding duplication that may frustrate and confuse retirement investors. The 

BIC Exemption requires extensive new disclosures, which are duplicative of many current 

disclosures. The nature and format of the new disclosures would also require extensive 

rebuilding of current systems. There is simply no way to plan, build, test and implement the 

bevy of disclosures set forth in the proposed implementation timeframe. 

The only practical avenue we see to implement additional disclosure requirements in a 

reasonable time period is to leverage existing disclosure requirements. Robust disclosures are 

already provided under ERISA Section 408(b)(2). These disclosures were implemented less than 

three years ago by the industry at considerable expense. Therefore, we recommend, instead of 

requiring new disclosures, the Department should rely on these 408(b)(2) disclosures as currently 

in place, as well as leverage other disclosures that are already provided, such as summary 

prospectuses, prospectuses, confirms, informational guides, Form ADV Part 2(a) and (b) and 

account agreements.54 

 54 In addition, Wells Fargo provides numerous guides and disclosures in paper and electronically through our 

websites, such as our A Guide to Investing in Mutual Funds, Guide to Buying Annuities, A Guide to Choosing a 

Financial Professional with Wells Fargo Advisors or Wells Fargo Advisors Financial Network, A Guide to 

Financial Protection for Older Investors and Investment Advisory and Brokerage Services guide. These guides, and 

others, are available at: https://www.wellsfargoadvisors.com/disclosures/guide-to-investing.htm.
 Appendix A (Sept. 24, 2015) 

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25

i. We Believe the Point of Sale Transaction 

Disclosure Is Duplicative of Existing Disclosures.

The BIC Exemption’s point of sale transaction disclosure requires provision of a chart 

setting forth the “all-in” cost and anticipated future costs over a 1, 5 and 10 year period of a 

recommended asset prior to execution of the purchase of the asset. We believe this disclosure as 

proposed will be difficult, if not impossible, to provide. 

As an initial matter, the Proposal calls for a point of sale disclosure but the total cost of 

transaction – to the penny55 – cannot be provided until after the transaction has been executed. 

In addition, the disclosure appears to be modeled after mutual fund summary prospectuses. 

Other asset types such as stocks or bonds do not have future costs that can be readily broken 

down into 1, 5 and 10 year segments. Furthermore, providing “reasonable assumptions” about 

an investment’s future performance could be perceived as conflicting with FINRA rules 

prohibiting predictions or projections of future performance.56

In addition, this disclosure would also unnecessarily interrupt the investment process. As 

the disclosure must be in form of a chart, it cannot be communicated verbally over the phone. 

By the time the chart is provided to an investor, the recommendation itself could be stale, such as 

in cases where a stock price changes. 

Mutual fund summary prospectuses provide investors with 1, 3, 5 and 10 year total costs 

(based on a $10,000 investment with a reasonable growth assumption) at or prior to settlement of 

a transaction. Additional disclosures are also provided regarding annuity costs and qualified plan 

fees and other costs are disclosed on transaction confirms. Because retirement investors are 

already provided with a wealth of information at or prior to settlement regarding initial and 

ongoing costs of their investments, we believe an additional point of sale disclosure is 

unnecessary. If the point of sale disclosure is not eliminated, we recommend the Department 

rely on mutual fund summary prospectuses for mutual fund transactions, as these documents 

provide a large portion of the information proposed to be disclosed. As we note above, we 

believe the existing 408(b)(2) disclosure process could also provide this information and already 

serves this purpose for ERISA-covered plans today.

The Department has also asked for comment on the effectiveness and cost of a “cigarette 

warning”-style disclosure, which could be placed on a confirmation, and provided instead of the 

point of sale disclosure. While such a disclosure would be less costly, we believe there is 

nothing inherently bad for a person about investing with a financial professional. Even though 

we do not believe such a “warning” is necessary, we recommend this type of disclosure at 

account opening as the more appropriate course should the Department decide additional 

information should be provided. 

 55 Wells Fargo recommends that this requirement be changed to provide for the disclosure of ranges of expenses. 

56 See, e.g., FINRA, Regulatory Notice 12-29, Communications with the Public (June 2012), at 16 (Predictions and 

Projections of Performance), available at: https://www.finra.org/sites/default/files/NoticeDocument/p127014.pdf. 

FINRA Rule 2210(d)(1)(F) prohibits communications predicting and projecting performance with an allowance for 

hypothetical illustrations of mathematical principles. 
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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26

ii. We Believe the Annual Disclosure Is Unnecessary.

The Department has also proposed in the BIC Exemption an annual disclosure (1) 

identifying assets purchased or sold, (2) total amount of fees or expenses paid by retirement 

investor on each asset and (3) compensation received by the financial institution and financial 

professional for each asset. As an initial matter, these proposed disclosures are unlikely to assist 

the average investor in making informed decisions. Assets purchased and sold throughout the 

year already appear on account statements throughout the year, as does much fee and expense 

information. Moreover, we reiterate our belief that the Department should leverage existing 

fulsome 408(b)(2) disclosures rather than create a new disclosure. While some information, such 

as indirect compensation received in connection with an asset, may not appear on regular 

statements, it could be disclosed using the 408(b)(2) disclosure that is already available. 

Finally, systematically collecting a detailed accounting of the dollars attributable to each 

asset in every account, if it is even possible, will significantly add to the cost of servicing 

accounts, making the servicing of small balance accounts uneconomical or driving investor costs 

higher. It is also unclear how such an amount could be determined in time to meet the 45 day 

deadline. We understand that the Department seeks to ensure that individuals have information 

about the cost and compensation associated with their account. However, because of the 

complexity of the proposed disclosure, we recommend that the Department leverage existing 

disclosures as part of the implementation of the Proposal and engage in a subsequent process to 

consider a disclosure that supplements existing disclosures and is easier to understand and 

implement.

iii. We Are Concerned that the Public Website Disclosure Will Increase Costs. 

In addition to the transaction and annual disclosures, the BIC Exemption requires 

disclosure on a public website of direct and indirect material compensation within the last 365 

days. This is a hugely complicated undertaking requiring the listing of tens of thousands of 

products that requires daily updating. 

We estimate the cost of the proposed website will be significant and expect it cannot be 

constructed within the proposed eight-month implementation period. In addition, the phrase 

“last 365 days” implies a rolling disclosure that must be updated daily as to potentially tens of 

thousands of data points. Continually updating the website in this manner will lead to substantial 

additional costs. We believe given the comprehensive disclosure regime already in place such 

costs are unwarranted. Therefore, if the public website disclosure is retained, we recommend it 

be limited to a static website with the current 408(b)(2) disclosure and quarterly updates of 

recent changes. We believe this would considerably reduce compliance costs, while providing

investors with the information they need to make an informed decision. As is the case with the 

proposed transaction and annual disclosures, this information will be supplemented by existing 

disclosures contained in prospectuses, confirms and retirement investor statements. 
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

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27

iv. We Believe the Data Disclosure to 

the Department is Overly Burdensome.

The BIC Exemption requires financial institutions to disclose to the Department, within 

six months of a request, data for the preceding six year period concerning investment inflows, 

outflows and holdings for each asset purchased, sold or held under the BIC Exemption. In 

addition, financial institutions must maintain a record of individual investors’ portfolio 

performance and the identity of their adviser. Even if individually-identifiable financial 

information is removed in any public disclosure of such data, we are concerned that sensitive 

information about individual investors would remain at risk in the event of a data breach, such as 

those which have recently victimized millions of federal employees.

 

In addition, we believe the proposed method of aggregating this data will fail to show 

how the choice of a particular investment strategy, including asset selections or decisions based 

on investor age or risk tolerance, may have impacted portfolio performance. Judging financial 

professionals in the absence of such critical nuance would unfairly assess their roles in assisting 

investors to meet their unique goals.

Finally, we are unclear how this requirement will benefit retirement investors as a 

comprehensive disclosure framework is already administered by the SEC and FINRA. We 

anticipate the systems necessary to effect this additional reporting requirement will take 

significant time and money to build. As such, we believe this requirement is unnecessary and 

unduly burdensome and the Department should leverage existing recordkeeping requirements 

instead of imposing new, costly recordkeeping requirements that will add to the costs of 

servicing retirement accounts. 

E. The BIC Exemption Contract Warranties Are Unnecessary.

Given the comprehensive legal and regulatory framework already in place,57 and the other 

proposed provisions of the BIC Exemption contract, we believe that the proposed warranties 

should not be part of the contract. We believe the ability of investors to seek redress should the 

“best interest” standard be violated is sufficiently protective. In addition, as set forth above, we 

believe conflicts of interest should be addressed by utilizing the existing Form ADV to help 

investors further understand a financial professional’s compensation and to reduce or eliminate 

conflicts of interest. 

We are concerned that the inclusion of the warranties in the contract will give rise to 

significant risk and uncertainty on the part of financial institutions. For example, a warranty to 

comply with federal or state law may have the effect of penalizing financial institutions and 

financial professionals for any slight violation or failure to comply. As we are subject to 

 57 Investor protections under the broker-dealer model are quite extensive and include, among other requirements, 

qualification and registration for broker-dealer representatives, continuing education requirements, a transparent 

system for reporting of disciplinary information of all kinds, specific supervision requirements, pre-use review and 

approval of communications with the public and formal rules governing a broker-dealer representative’s outside 

business activity. Furthermore, FINRA routinely examines financial institutions for compliance with these and 

other requirements.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

28

substantial regulatory and legal oversight, we think the provision related to compliance with all 

applicable federal and state law should be eliminated entirely. We do not believe that this 

warranty gives an additional protection to investors unavailable under the relevant law itself. 

While we believe the “best interest” standard obviates the need for the other proposed 

warranties, if they are retained in any form, we believe they should instead be conditions of the 

BIC Exemption itself. We note that regulators generally are better positioned to review the types 

of activities covered by the proposed warranties. For example, it would be extremely 

burdensome to respond to individual claims to review policies and procedures. Because the 

requirements of the BIC Exemption are so complex, we also suggest that the Department 

consider some procedure for financial institutions to correct errors and maintain compliance on 

an ongoing basis.

F. The Range of Investment Options Notice and 

The BIC Exemption’s Other Provisions Are Incongruous.

We are uncertain of the purpose of the notice required under the Range of Investment 

Options provision of the BIC Exemption.58 While the Department restricted the types of 

investments that retirement investors can make in IRAs elsewhere in the BIC Exemption, the

provision’s “limited range of investment options” notice appears to penalize financial 

professionals or financial institutions who only offer a limited set of investments, such as certain 

investment specialists. The business of such specialists, who are not responsible for a retirement 

investor’s entire portfolio, should not be hampered by the requirement that they notify a client or 

prospective client that they do not “recommend a sufficiently broad range of Assets.”59 

Furthermore, the definition of “sufficiently broad” is unclear. For example, a retirement investor 

requiring only the purchase of a particular “Asset” from a financial professional may very well 

have their needs satisfied. We recommend the Department provide greater clarity with respect to 

when the requirements of the notice would apply to financial institutions with only proprietary 

products (e.g., offering only proprietary mutual funds and direct to fund retirement investors).

G. The Pre-Existing Transactions Exemption Should Be Broadened.

The Pre-Existing Transaction Exemption is conditioned on not providing additional advice 

to existing clients and does not include investments that are not “Assets.” We believe the PreExisting Transaction Exemption should be expanded to permit the ongoing advice most 

consumers expected at the time of purchase without fundamentally disrupting the relationship by 

requiring a contract and the other BIC conditions. Therefore, we recommend that the 

Department consider an exemption to all accounts existing as of the effective date of the final 

rule. 

Alternatively, the BIC Exemption conditions should only apply to investments purchased 

after the applicable date. Under this alternative, we would still require guidance and examples of 

 58 80 Fed. Reg. 21985 (§ IV(b)).

59 Id. (§ IV(b)(4)).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

29

how financial institutions should deal with such new limitations and restrictions on existing 

investments so that they remain grandfathered. Furthermore, this exemption should include 

existing investments that do not conform to the definition of “Assets.” For example, if a client 

has a municipal bond, that client should be permitted to keep the bond instead of having to 

liquidate it prematurely or purchase another asset regardless of whether it falls within the BIC 

Exemption’s “Asset” list. In addition, institutions should be permitted to advise an individual to 

liquidate such a grandfathered holding, without such a recommendation being considered 

“investment advice.”

III. THE PRINCIPAL TRANSACTION EXEMPTION IS TOO NARROW 

AND SHOULD LEVERAGE EXISTING REGULATORY REQUIREMENTS.

As an initial matter, we believe a limitation on principal trading, and therefore the 

Proposed Class Exemption for Principal Transactions in Certain Debt Securities between 

Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (“Principal Transaction 

Exemption”), will not benefit retirement investors and, thus, all principal transactions should be 

exempted. Alternatively, should there be any limitation on principal trading, it should be 

consistent with the relief provided by the SEC under Rule 206(3)-3T (“Rule 206(3)-3T” or the 

“Rule”) of Advisers Act.

60 

Rule 206(3)-3T applies to institutions that are dually registered as investment advisers and 

broker-dealers and to transactions in non-discretionary accounts at such institutions. Rule 

206(3)-3T does not relieve in any way an investment adviser from acting in the best interests of 

an advisory client, including fulfilling the duty with respect to the best price and execution for 

the particular transaction for an advisory client. Nor does the Rule relieve an investment adviser 

from any obligation that may be imposed by section 206(1) or (2) of the Advisers Act61 or by 

other applicable provisions of the federal securities laws. 

We believe the Principal Transaction Exemption should mirror Rule 206(3)-3T, including 

with respect to the best execution and pricing obligations. Furthermore, harmonizing the 

Principal Transaction Exemption with the requirements under Rule 206(3)-3T would make the 

Exemption both operationally workable and would benefit investors purchasing or selling certain 

securities on a principal basis.

 60 See SEC, Rule 206(3)-3T, Investment Advisers Act of 1940, Temporary Rule for Principal Trades with Certain 

Advisory Clients (codified at 17 C.F.R. pt. 275.206(3)-3T).

61 15 U.S.C. § 80b-6:

It shall be unlawful for any investment adviser, by use of the mails or any means or instrumentality of interstate 

commerce, directly or indirectly –

(1) to employ any device, scheme, or artifice to defraud any client or prospective client;

(2) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any 

client or prospective client.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

30

A. The Exemption Should Include Other Types of Securities.

The Principal Transaction Exemption is unnecessarily limited to certain debt securities.62 

We believe retirement investor’s will be afforded greater, and equally prudent, choices under a 

limitation similar to Rule 206(3)-3T with respect to the types of securities covered. Rule 206(3)-

3T permits principal transactions in any security. The only exception is where the investment 

adviser or affiliate is the issuer of, or, at the time of the sale, an underwriter of, the security –

unless the security is an “investment grade debt security.”63 We encourage the Department to 

make such a change to provide retirement investors flexibility to choose what accounts are most 

appropriate for purchasing initial public offerings (“IPOs”) and other such capital markets 

transactions.

B. A Client’s Written Prospective Consent to Act as a Principal Should Be Sufficient.

We believe the contract required under the Principal Transaction Exemption is not 

necessary. The contract required under the Principal Transaction Exemption contains the same 

elements as the BIC Exemption and, therefore, raises many of the same issues. In particular, we 

note again that the industry typically relies on negative consent for account changes and 

obtaining the retirement investor’s affirmative written consent will be operationally challenging. 

We recommend the contract element of the Principal Transaction Exemption be limited to 

a written prospective consent similar to those which financial institutions customarily capture 

under the Rule 206(3)-3T.64 Such a consent would authorize the financial professionals –

directly or indirectly – to act as principal. These disclosures would also include a conspicuous, 

plain English statement that the client may revoke the written consent without penalty at any 

time by written notice to the financial professional. 

 62 The Principal Transaction Exemption also contains an unclear requirement that the debt possess no greater than 

“moderate credit risk.” This term is not defined in the Proposal. Wells Fargo suggests that the Department adopt 

the Rule 206(3)-3T definition of “investment grade debt security.” See 17 C.F.R. pt. 275.206(3)-3T(c).

63 “Investment grade debt security means a non-convertible debt security that, at the time of the sale, is rated in one 

of the four highest rating categories of at least two nationally recognized statistical rating organizations.” Id.

64 Under Rule 206(3)-3T, an advisory client must execute “a written, revocable consent prospectively authorizing 

the investment adviser directly or indirectly to act as principal for its own account in selling any security to or 

purchasing any security from the advisory client, so long as such written consent is obtained after written disclosure 

to the advisory client explaining: 

(i) the circumstances under which the investment adviser directly or indirectly may engage in principal 

transactions; 

(ii) the nature and significance of conflicts with its client’s interests as a result of the transactions; and 

(iii) how the investment adviser addresses those conflicts.”

Id. at 206(3)-3T(a)(3).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

31

C. The Disclosures Required Under the Exemption Are Unnecessarily Burdensome.

The pre-transaction disclosures required under the Principal Transaction Exemption are 

operationally impracticable. In particular, the requirement that the price is at least as favorable 

to the plan or IRA as the contemporaneous price for the debt security (or similar security if a 

price is not available for the same debt security) offered by two ready and willing counterparties 

that are not affiliated with the financial institution. As an initial matter, the idea that there are at 

least two other counterparties is somewhat inconsistent with the stated rationale of the Principal 

Transaction Exemption.

65 More importantly, compliance with this condition would increase 

costs and narrow the universe of securities for which the Principal Transaction Exemption is 

available.

We recommend the two quote requirement be eliminated. In the alternative, we 

recommend an allowance for instances in which obtaining two quotes is impossible. For 

example, retirement investors may need to liquidate a percentage of their account to meet an 

immediate income need. We believe the Department’s assumption that it will only take “five 

minutes” to get the two quotes,66 based upon our experience, is faulty in many instances and that 

retirement investors will be harmed if they are forced to wait the duration of time that it will take 

to accumulate the necessary information.

We believe the mark-up/mark-down disclosure is also unreasonable. For example, this 

disclosure will require a unique confirm for IRA accounts. Our recommendation is that this 

disclosure be eliminated. 

The Principal Transaction Exemption further requires the financial institution and financial 

professional to provide certain written information to the retirement investor annually. This 

annual disclosure includes a list identifying each principal transaction engaged in during the 

applicable period, the prevailing market price at which the debt security was purchased or sold, 

and the applicable mark-up/mark-down or other payment for each debt security. We believe this 

disclosure is unnecessary and that the disclosure of the transaction price as per Rule 206(3)-3T is 

sufficient to achieve the objectives of the Principal Transaction Exemption.67 

The Principal Transaction Exemption also requires upon-request disclosures at any time 

within six years of the debt security’s purchase or sale. We are uncertain exactly what additional 

information, not already provided, must be saved for six years. We recommend the Department 

eliminate these burdensome requirements and adopt the disclosures required under Rule 206(3)-

3T. 

 65 We understand the Department’s rationale to be that the danger of conflicts of interest in principal transactions 

involving other types of securities, which may be more “widely available,” outweighs the reduced choices for plans. 

80 Fed. Reg. 21994. Whereas “debt securities...may need to be sold on a principal basis because particular bond 

issues may be sold by only one or a limited number of financial institutions.” Id.

66 Id. at 22000. 

67 Rule 206(3)-3T requires investment advisers to send to the client, no less frequently than annually, written 

disclosure containing a list of all transactions that were executed in the client’s account in reliance upon this rule, 

and the date and price of such transactions. See 17 C.F.R. pt. 275.206(3)-3T(a)(6).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

32

D. Existing Investor Protections Mitigate the Risk of Excessive 

Mark-Ups/Mark-Downs and the Need for Additional Pricing Transparency.

The Principal Transaction Exemption requires financial institutions to provide a written 

confirmation of the principal transaction in accordance with Rule 10b-10 of the Securities 

Exchange Act of 193468 that also includes disclosure of the mark-up/mark-down or other 

payment to the financial institution, financial professional or affiliate in connection with the 

principal transaction. As an initial matter, we note that Rule 10b-10 does not require disclosure 

of mark-ups/mark-downs and that putting such information on the trade confirmation may have 

to be approved by the SEC. 

Rule 206(3)-3T requires investment advisers to send a written confirmation of the 

transaction at or before completion of each such transaction that includes, in addition to the 

information required by Rule 10b-10, a conspicuous, plain English statement of the information 

that the adviser disclosed to the client. This includes disclosure to the client prior to the 

execution of the transaction that the adviser may be acting in a principal capacity in connection 

with the transaction and the client authorized the transaction; and that the adviser sold the 

security to, or bought the security from, the client for its own account.69 We believe this 

confirmation is sufficient.

IV. MEETING THE EIGHT-MONTH 

IMPLEMENTATION DEADLINE IS IMPOSSIBLE.

The Proposal is one of the most complicated regulatory initiatives proposed in recent 

memory. Yet the Department is proposing a short eight-month implementation time period to 

largely restructure our entire approach to advising retirement investors, including, but not limited 

to, repapering millions of existing retirement accounts, developing new disclosure processes, 

new supervisory processes, new training classes/modules and new data collection processes. The 

proposed eight-month implementation time period is not practicable and could cause unintended 

harm to the retirement investors the Department purportedly seeks to protect.

The Department vastly underestimates the time and resources necessary to code, build and 

implement entirely new technology infrastructure to service and support the new regulatory 

requirements. The actual implementation period is compressed even further given required 

system and compatibility testing prior to any production.

Other significant and less complicated regulatory reporting initiatives have taken far 

longer to be fully implemented than the Department’s proposed implementation timeline. The 

Department allowed a two year implementation period for the development of Rule 408(b)(2) 

 68 SEC, Confirmation of Transactions, Rule 10b-10, Securities Exchange Act of 1934 (codified at 17 C.F.R. pt.

240.10b-10).

69 See 17 C.F.R. pt. 275.206(3)-3T(4) and (5).
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

33

disclosures.70 Similarly the SEC allowed two years to implement its Large Trader Reporting 

initiative.71 We estimate the development, testing and implementation of the Proposal’s BIC 

Exemption’s website disclosure alone would take far longer than eight months. To rush through 

the development of new processes, procedures, disclosure systems and employee training could 

lead to system and process shortcomings that increase, rather than decrease, investor protections. 

In addition, considering the number of IRA accounts we have, and the number of IRA 

accounts even smaller financial institutions have, taking on manual processes is unworkable. 

Most financial institutions, large and small, will rely on automated systems and processes to 

comply. Therefore, an eight-month implementation timeframe is not realistic.

Given the uncertainty as to the details of the final rule, we cannot identify a specific 

timeframe to implement the Proposal’s requirements with confidence. Based on the Proposal, 

though, processes such as mapping data; archiving and storage protocols; validation; and 

reconciliation may take three years or longer, notwithstanding other significant work such as 

system testing, security and governance protocols. Furthermore, this list just captures 

technology protocols. Implementing these changes alone suggests eight months is an 

unreasonable time period, and we recommend the Department establish a more realistic 

implementation time period of at least three years. 

We also believe that the Proposal should be implemented in phases and that each phase 

give adequate time to implement the required activity properly and prepare for the subsequent 

phase. Our review of the Proposal is ongoing and we hope to provide a more detailed suggestion 

for phased implementation in a subsequent letter. However, we note that whatever the final form 

of the regulation and exemptions may be, it appears that there will be substantial change to 

existing procedures and systems and unanticipated challenges will certainly arise. Therefore, we 

strongly recommend that the Department provide a compliance relief period for those who make 

a good faith effort to comply in a timely fashion.

72

V. AN EXEMPTION SHOULD BE MADE FOR ACTIVITIES 

REGULATED BY AN SRO OR A REGULATORY AGENCY.

Broker-dealers, investment advisers, banks and other institutions that provide investment 

advice to investors operate within a comprehensive regulatory framework established and 

 70 See, e.g., Dep’t of Labor, Employee Benefits Security Admin., Reasonable Contract or Arrangement Under 

Section 408(b)(2) – Fee Disclosure, 77 Fed. Reg. 5632, at 5649 (Feb. 3, 2012) (codified at 29 C.F.R. pt. 2550), 

available at: http://www.gpo.gov/fdsys/pkg/FR-2012-02-03/pdf/2012-2262.pdf. 

71 See, e.g., SEC, Order Temporarily Exempting Certain Broker-Dealers and Certain Transactions from the 

Recordkeeping and Reporting Requirements of Rule 13h-1 under the Securities Exchange Act of 1934, Release No. 

34-70150 (Aug. 8, 2013), available at: http://www.sec.gov/rules/exorders/2013/34-70150.pdf.

72 See, e.g., Dep’t of Labor, Employee Benefits Security Admin., Frequently Asked Questions:

The 2009 Form 5500 Schedule C, at FAQ 40 (providing compliance relief period for good faith compliance efforts), 

available at: http://www.dol.gov/ebsa/faqs/faq_scheduleC.html.
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

34

overseen by various federal and state agencies and self-regulatory organizations (“SROs”).73 An 

exemption from the Proposal for accounts, including IRAs, or persons subject to the regulatory 

jurisdiction of an SRO or a regulatory agency under a “best interest” standard for the provision 

of personalized investment advice would mitigate the overlap between these regulatory 

frameworks and the Proposal. 

We have supported the SEC’s efforts to establish one harmonized fiduciary standard 

consistent with Section 913 of the Dodd-Frank Act.74 We have also supported recent industry 

proposals to, among other changes, amend FINRA’s Suitability Rule to include a “best interest”

standard that applies to all retail brokerage accounts. Such changes to either SEC or FINRA 

rules would incorporate much of the “best interest” standard defined by the Department under 

the BIC Exemption and would build on the extensive protections already provided by current 

regulation.

As retirement planning includes assets outside of traditional retirement accounts, we 

believe a uniform standard will provide the most beneficial protection to investors by creating a 

consistent set of obligations across all account types and eliminating investor confusion 

concerning the applicable standard of care. Therefore, we propose an exemption under the 

Proposal for accounts, including IRAs, maintained at a financial institution or with a financial 

professional subject to the regulatory jurisdiction of an SRO or a federal securities regulator if 

such SRO or federal securities regulator subjects the associated financial institution or financial 

professional to standards no less than those specified in the BIC Exemption. The exemption for 

such accounts would require the SRO or federal securities regulator standards include at a 

minimum:

 A “best interest” standard of care for activities affecting customers;

 Disclosures of conflicts and commissions, such as summary prospectuses, prospectuses, 

confirms, Form ADV and 408(b)(2) disclosures, and mitigation of conflicts of interest to 

the extent practicable; and 

 Any other customer protections developed by the SRO or federal securities regulator 

meeting the Department’s fundamental requirements. 

 73 At the federal level, investment advice is regulated primarily by the SEC and FINRA. The investment advice 

provided by banks is generally exempt from SEC regulation, but depending on whether the bank is nationally 

chartered or state chartered, is subject to regulation and supervision by one or more of the Office of the Comptroller 

of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit 

Insurance Corporation (“FDIC”) and state banking authorities. Further regulation is overseen by the Municipal 

Securities Rulemaking Board (“MSRB”) (for advice with respect to municipal securities) and the Commodity 

Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) (for advice with respect to 

commodity trading). 

74 See Correspondence from Robert J. McCarthy, Director of Regulatory Policy at Wells Fargo Advisors, LLC, to 

Elizabeth M. Murphy, Secretary of Securities and Exchange Commission, regarding File No. 4-606; Release No. 

34-69013; IA-3558; Duties of Brokers, Dealers and Investment Advisers, at 2-7 (July 5, 2013), available at:

https://www.sec.gov/comments/4-606/4606-3127.pdf. 
 Appendix A (Sept. 24, 2015) 

Wells Fargo & Co.

Appendix A

35

Such an exemption would allow the same standards to be applied across all accounts at 

broker-dealers. In addition, such an exemption would lead to direct regulatory enforcement of 

“best interest” standards through resolution of customer claims via existing processes at brokerdealers rather than by contractual litigation.

VI. CONCLUSION

Wells Fargo appreciates the opportunity to respond to the Department’s Proposal. As 

discussed above, we have consistently supported, and continue to support, a “best interest”

standard of care for retirement and nonretirement advice that enhances protections for investors 

while preserving access to the full range of investment products and services they currently 

enjoy. We believe this can be accomplished by establishing a “best interest” standard (to replace 

the existing suitability standard), enhancing disclosures to investors in a manner consistent with 

what is currently prescribed (utilizing existing disclosures including, for example, 408(b)(2) 

disclosures for retirement plan investors) and specifying these “best interest” standards through a 

new contract with investors that is entered into at the time an account is opened.

While we support the Department’s efforts in creating a retirement standard of care that 

eliminates or mitigates conflicts of interest, we believe the limiting of investor education, the 

impractical and overly burdensome requirements of the BIC Exemption, the mandating of 

excessive warranties that create uncertainty, a short eight month implementation deadline and the 

complexities of overlapping regulatory frameworks make the Proposal an impracticable option 

as it is written today. We would also recommend the Department provide an additional 

exemption for IRA accounts of financial institutions regulated by an SRO or regulatory agency 

that has adopted an agreed upon “best interest” standard for the provision of personalized 

investment advice. 

In sum, we believe the Proposal presents a number of issues for investor access to 

investment education and advice, investor choice in retirement investments and investor costs. 

Accordingly, we stand ready to work with the Department to achieve a workable outcome that 

benefits retirement investors. If you would like to further discuss any of Wells Fargo’s 

comments, please contact Robert J. McCarthy, Director of Regulatory Policy, at (314) 955-2156 

or robert.j.mccarthy@wellsfargoadvisors.com or Kenneth L. Pardue, Managing Director, 

Retirement Plans, at (314) 875-2927 or kenneth.pardue@wellsfargoadvisors.com.

 
Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

A SUMMARY OF WELLS FARGO’S RECOMMENDED CHANGES TO THE PROPOSAL

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

1-14

§ I

The proposed definition of “fiduciary”

classifies all manner of information as 

fiduciary advice while providing only 

narrow carve-outs.

The definition of “fiduciary” should be 

narrowed and the available carve-outs

should be appropriately broadened.

Investors will have access to the 

financial information they need to be 

informed participants and decision 

makers.

2

§ I.A.i

Under the Proposal, fiduciary status 

attaches to advice “for consideration” 

by the investor.

Individuals should be permitted to 

receive sales information about 

available product options before 

committing to a financial professional or 

product. 

Investors will have access to investment, 

distribution and other assistance in

understanding available options before 

establishing a binding contractual 

commitment. 

3

§ I.A.ii

The Proposal eliminates the “mutual 

agreement” requirement contained in 

the current regulation. 

Fiduciary obligations should attach when 

the financial professional and the

investor “mutually understand” they 

have entered into an advice relationship. 

A best interest fiduciary standard will

protect the investor from the point an 

advice relationship begins while 

providing investors with access to 

essential information beforehand.

3

§ I.A.iii

The proposed definition of “fiduciary”

includes advice that is “specifically 

directed to” the investor.

The language “specifically directed to” 

should be eliminated to avoid capturing 

activities such as mailings discussing

specific products and services. 

Providing specific product and service 

information to an investor directly is 

essential to establishing a disciplined 

approach to retirement investing and 

planning.

4

§ I.A.iv

The Proposal’s distinction between 

when a recommendation becomes 

advice is unclear.

A brighter line for when fiduciary status 

begins should be established, consistent 

with the definition of “customer” under 

FINRA Rule 2111 – the “Suitability 

Rule.”

Establishing a consistent regulatory 

framework – regardless of account type

– will reduce investor confusion.
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

2

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

5

§ I.B.i

The availability of the proposed

Seller’s Carve-Out depends on (1) the 

number of participants in the plan, and 

(2) the amount of plan assets under 

management of the plan fiduciary.

As all ERISA fiduciaries must have

sufficient expertise to prudently 

discharge their duties, the Seller’s CarveOut should cover all ERISA-covered 

plans, regardless of size.

Providing small plans will access to the 

Carve-Out will allow them to avoid 

unnecessary expenses.

5

§ I.B.ii

The Seller’s Carve-Out does not 

include accredited retail or 

institutional investors.

Accredited investors should be included 

in the Carve-Out consistent with current 

securities law.

Sophisticated investors who are familiar 

with the potential risks will be permitted 

greater latitude.

6

§ I.B.iii

The Seller’s Carve-Out has a number 

of conditions, including a requirement 

that the counterparty receive certain 

written representations. 

The Carve-Out should be drafted to 

ensure that investment advice does not 

include the response of a service 

provider to a request for proposal.

Broadening the Carve-Out to include 

common sales transactions will allow 

competition and provide investors with 

greater price efficiency.

6

§ I.C.i

The Platform Providers and Selection 

and Monitoring Assistance CarveOuts could be interpreted as limited to 

recordkeepers.

These Carve-Outs should include all 

platforms.

Broadening the Carve-Outs will allow 

for the development of a product 

platform.

7

§ I.C.ii

The Platform Providers and Selection 

and Monitoring Assistance CarveOuts may not accommodate situations 

where neither party is expecting to be 

in a fiduciary relationship.

These Carve-Outs should allow for the 

provision of objective, publicly 

available investment advice. 

Broadening the Carve-Outs will allow 

service providers to provide plan 

fiduciaries with valuable assistance. 

7

§ I.C.iii

The Platform Providers and Selection 

and Monitoring Assistance CarveOuts may not permit service providers 

to analyze fund selections.

These Carve-Outs should allow service 

providers to assist plan fiduciaries in 

narrowing the range of investment 

options for plan participants. 

Broadening the Carve-Outs will allow 

service providers to continue to assist 

plan fiduciaries in choosing from 

available funds. 

8

§ I.D

The Financial Reports and Valuations 

Carve-Out may not include certain

administrative functions.

The Financial Reports and Valuations

Carve-Out should include valuations of 

plan investments provided by plan 

service providers. 

Investors will benefit from the inclusion 

of such calculations in the Carve-Out 

because they help to facilitate daily 

trading.
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

3

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

9

§ I.E.i

The Proposal places new conditions on 

what is considered investment advice, 

including that information and asset 

allocation models cannot include 

specific investment alternatives.

The Investment Education Carve-Out 

should be modified to more closely 

resemble the DOL’s 1996 guidance, 

which allowed discussion of specific 

investment alternatives.

Investors will receive objective 

information and benefit from discussing 

investment alternatives.

11

§ I.E.ii

The Proposal does not accommodate 

the questions that plan participants 

have after receiving an explanation of 

their distribution options.

Service provider call centers inform 

plan participants about distribution 

options and should be permitted to 

continue, at a minimum, to confirm that 

IRAs are offered by the service provider 

without fiduciary status.

Participants who are more informed of 

their distribution options will be more 

likely to retain their retirement benefits 

instead of cashing them out.

12

§ I.F.i

The Proposal covers and treats HSAs in 

a manner similar to IRAs.

The Proposal should not include HSAs

because they serve an entirely different 

purpose than IRAs. If HSAs are 

ultimately included in the Proposal: (1) 

Platform Provider Carve-Out should 

be extended to HSAs; and (2) 

communications regarding how to use an 

HSA should be included in the

Investment Education Carve-Out.

Investors use HSAs to pay for medical 

and other healthcare expenses and will 

not benefit from the imposition of 

additional regulatory restrictions and 

costs on top of the existing extensive 

regulatory structure. 

14

§ I.F.ii

The Proposal covers and treats ESAs in 

a manner similar to IRAs.

The Proposal should not include ESAs

because they serve an entirely different 

purpose than IRAs. If ESAs are 

ultimately included in the Proposal, 

communications regarding how to use an 

ESA should be included in the

Investment Education Carve-Out.

Investors use ESAs to fund education 

expenses for a designated beneficiary 

who is under age 18 or is a special needs 

beneficiary. Given the limited funding

options and generally short life of ESAs,

additional regulatory restrictions will 

not benefit investors.
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

4

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

14-29

§ II

The BIC Exemption is intended to 

“preserve beneficial business models 

for delivery of investment advice.” 

The BIC Exemption is impracticable as 

proposed.

A revised exemption will provide 

flexibility to determine the appropriate 

service and fee models for each 

investor. 

15

§ II.A.i

The BIC Exemption’s “written 

contract” requirement will cause a 

number of challenges for prospective 

clients.

Consistent with FINRA’s Suitability 

Rule, the contract should only be 

executed after a prospective customer 

becomes a client. 

The execution of the contract with new 

account opening documentation will 

provide investors with “best interest” 

protections, while providing access to 

financial professionals.

17

§ II.A.ii

The BIC Exemption’s “written 

contract” requirement will cause a 

number of challenges for existing 

clients.

For existing clients, firms should be 

permitted to amend existing contracts 

with the new BIC Exemption via notice.

Utilizing a notice amendment process 

alleviates the practical issue of how to 

address instances where the investor 

does not sign the contract.

17

§ II.A.iii

The BIC Exemption’s “written 

contract” requirement appears to 

contemplate signatures from the 

financial institution, the financial 

professional and the client.

Obtaining financial institution and 

financial professional signatures will 

raise numerous practical issues and 

should not be required.

Client agreements typically only require 

a client signature, which is sufficient to 

create a legally enforceable right on the 

part of the client.

18

§ II.B.i

The BIC Exemption’s “Impartial 

Conduct Standards” may effectively 

restrict financial institutions to 

recommending the least expensive 

product or strategy.

The Proposal should provide investors 

with the freedom to choose prudent 

products, e.g., FINRA Regulatory 

Notice 12-25 provides other factors to 

consider in addition to cost. 

Investors will retain access to products

or services that are in their best interest, 

whether they are the least expensive 

option or not.

20

§ II.B.ii.

The BIC Exemption’s “Impartial 

Conduct Standards” may restrict

investor choice regarding advice models 

if the alternatives involve differential 

compensation.

The Proposal should provide investors

with the freedom to choose appropriate 

payment models. 

Investors will retain the choice to pay 

for service as (1) a one-time fee, (2) an 

ongoing fee, (3) a fee for transactions 

incidental to advice, and (4) fee for 

transactions without advice. 
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

5

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

21

§ II.B.iii

The impact of the BIC Exemption’s 

“Impartial Conduct Standards” on

proprietary products is unclear. 

This phrase “without regard to the 

financial or other interests of the 

Adviser, Financial Institution or any 

Affiliate, Related Entity or other party”

should be eliminated.

Investors will retain access to 

proprietary products so long as the 

proprietary product is in the investor’s 

best interest.

22

§ II.C.i

The effect of the BIC Exemption on a 

financial professional’s ability to offer 

services such as advisory programs to

investors is unclear. 

If the Department did not intend to 

restrict access from advisory services, the 

Department should eliminate the 

“Asset” list, or revise to include such 

services.

A financial professional will be 

permitted to recommend a firm 

sponsored advisory program if such a 

recommendation is in the investor’s best 

interest.

22

§ II.C.ii

The BIC Exemption includes a limited 

definition of “Asset.”

Financial professionals and investors 

should be permitted to make 

judgments about appropriate 

investments and the concept of permitted 

investments should be eliminated.

Investors will retain access to innovative 

products so long as they are in the 

investor’s best interest. 

23

§ II.C.iii

Variable annuities and other registered 

products are included in the definition 

of “Asset.”

Annuities should continue to be 

offered under PTE 84-24 as financial 

professionals and institutions will be 

challenged to offer annuities under the 

BIC Exemption.

Annuities provide an important source 

of cash flow for investors during their 

retirement years.

23

§ II.C.iv

The BIC Exemption does not contain a 

carve-out for accredited retail and 

institutional investors.

The definition of “Asset” should not 

apply to investors that can be designated 

as accredited investors.

Sophisticated investors are familiar with 

the potential risks of less common 

investment types and should be not 

restricted from using such products.

24

§ II.C.v

The BIC Exemption does not 

distinguish products and services that 

address conflict issues under existing 

regulations.

Compliance conditions associated with 

such products and services should be

limited to contractual provisions 

implementing the “best interest” 

standard of care.

Investors will not benefit from the 

proposed additional protections when 

the product or service is already 

compliant with ERISA and the 

prohibited transaction restrictions of the 

Internal Revenue Code.
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

6

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

25

§ II.D.i

The BIC Exemption requires a point of 

sale transaction disclosure of the “allin” cost and anticipated future costs of a 

recommended asset prior to execution of 

the purchase of the asset. 

Instead of requiring new disclosures, the 

408(b)(2) disclosures should be 

utilized. Other disclosures that are 

already provided could also be leveraged.

The transaction disclosure will be 

difficult, if not impossible, to provide as 

currently proposed and will 

unnecessarily interrupt the investment 

process. 

25

§ II.D.i

The Department has proposed a 

“cigarette warning”-style disclosure. 

This type of disclosure at account 

opening may be a more appropriate 

disclosure than the point of sale 

disclosure.

A “cigarette warning”-style point of sale 

disclosure is unnecessary as there is 

nothing inherently bad about investing.

26

§ II.D.ii

The BIC Exemption requires an annual 

disclosure identifying assets purchased 

or sold and associated fees and expenses 

and compensation.

Existing 408(b)(2) disclosures are 

fulsome disclosures and they should be 

applied to IRAs as is without an annual 

disclosure. 

The annual disclosure – if it is even 

possible as proposed – will significantly 

add to the cost of servicing accounts, 

making the servicing of small balance 

accounts uneconomical. 

26

§ II.D.iii

The BIC Exemption requires disclosure 

on a public website of direct and 

indirect material compensation within 

the last 365 days.

Much of this information can be supplied 

by applying current 408(b)(2) 

requirements to cover IRA accounts.

The time and resources that would have 

to be allocated to build the proposed 

public website will significantly impact 

the services available to investors.

27

§ II.D.iv

The BIC Exemption requires financial 

institutions to disclose to the 

Department within six months of a 

request certain data for the preceding 

six year period.

This requirement is unnecessary as the 

Department should leverage existing 

recordkeeping requirements instead of 

imposing new, costly requirements.

The proposed data disclosure will add 

unnecessary costs to servicing 

retirement accounts.

27

§ II.E

The BIC Exemption’s warranties are 

unnecessary.

The “best interest” standard obviates the 

need for the other proposed warranties. 

The ability of investors to seek redress 

should the best interest standard be 

violated is sufficiently protective. 
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

7

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

28

§ II.F

The purpose of the BIC Exemption’s 

notice to a client or prospective client 

that an investment specialist does not 

“recommend a sufficiently broad 

range of Assets” is unclear.

The business of certain investment 

specialists, who are not responsible for 

an investor’s entire portfolio, should not 

be hampered by the requirement that 

they provide such a notice. 

Investors will be encouraged to work 

with investment specialists if it is in 

their best interests.

28

§ II.G

The BIC Exemption’s Pre-Existing 

Transactions Exemption is 

conditioned on not providing additional 

advice and is too narrow.

An exemption should be made for all 

investments that are held by investors

on the applicability date of the final 

rule without application of the BIC 

Exemption conditions.

Restricting accounts in line with the 

Proposal will likely be costly and 

difficult to implement. The allocation 

of such resources will ultimately affect 

the quality of client service.

29-32

§ III

The Principal Transaction Exemption

is too narrow and does not leverage 

existing regulatory requirements.

Any limitation on principal trading 

should be consistent with the relief 

provided by the SEC under Rule 206(3)-

3T under the Investment Advisers Act of 

1940.

Permitting principal transactions under 

conditions aligning with the Advisers 

Act will improve and simplify investors’ 

experiences. 

30

§ III.A

The Principal Transaction Exemption is 

unnecessarily limited to certain debt 

securities.

Rule 206(3)-3T permits principal 

transactions in any security with a 

limited exception where the financial 

professional is an issuer or underwriter of 

the security.

Broadening the Exemption will provide 

investors with certain tax advantages 

such as those associated with purchasing 

IPOs in IRAs

30

§ III.B

The contract required under the 

Principal Transaction Exemption 

contains the same elements as the BIC 

Exemption and, therefore, raises many 

of the same issues. 

The contract element should be limited 

to a written prospective consent similar 

to those which financial institutions 

customarily capture under Rule 206(3)-

3T. 

The investor could revoke such a 

consent without penalty at any time. 

This consent will provide investors with 

sufficient protection without 

unnecessarily inhibiting principal trades. 

31

§ III.C

The pre-transaction disclosures

required under the Principal Transaction 

Exemption are operationally 

impracticable. 

These disclosures should be eliminated

and the disclosures required under Rule 

206(3)-3T should be used. 

The provision of the proposed

disclosures will be impossible in some 

cases, and operatically burdensome in 

many others, with little practical benefit 

to investors.
 Appendix A (Sept. 24, 2015)

Wells Fargo & Co.

Appendix B

8

Page & 

Section Department Proposal Provision Wells Fargo Recommendation Benefit to Investors

32

§ III.D

The Principal Transaction Exemption 

requires financial institutions to provide 

a written confirmation, including 

disclosure of the mark-up/mark-down.

Existing investor protections mitigate 

the risks of excessive mark-ups/markdowns. Further, SEC approval may be 

required to include mark-ups/markdowns on the trade confirmations.

Investors already benefit from the 

pricing transparency provided by the 

Rule 10b-10 written confirmation. 

Additional disclosures on confirmations 

are unnecessary.

32-33

§ IV 

The Department is proposing a short

eight-month implementation period to 

largely restructure the industry’s whole 

approach to advising investors. 

Given the uncertainty as to the details of 

the final rule, we cannot identify a 

specific timeframe to implement the 

Proposal’s requirements with confidence, 

but assume it will be at least three 

years.

A hurried implementation of the 

Proposal in eight months is not only

impossible, a less than thorough 

restructuring would do investors a great 

disservice.

33-35

§ V

The Proposal further contributes to an 

overlapping regulatory framework.

An exemption should be made for 

activities regulated by an SRO or a 

federal securities regulator’s best 

interest standard.

As retirement planning includes assets 

outside of traditional retirement 

accounts, a uniform standard will

provide the most beneficial protection to 

investors by creating a consistent set of 

obligations across all account types. 
Wells Fargo & Co.

Appendix B

1

WELLS FARGO’S RECOMMENDED CHANGES TO 

THE DEFINITION OF THE TERM “FIDUCIARY”; 

CONFLICT OF INTEREST RULE – RETIREMENT INVESTMENT ADVICE

§ 2510.3-21 Definition of “Fiduciary.” 

(a) Investment advice. For purposes of section 3(21)(A)(ii) of the Employee Retirement 

Income Security Act of 1974 (Act) and section 4975(e)(3)(B) of the Internal Revenue Code 

(Code), except as provided in paragraph (b) of this section, a person renders investment advice 

with respect to moneys or other property of a plan or IRA described in paragraph (f)(2) of this 

section if—

(1) Such person provides, directly to a plan, plan fiduciary (as described in section 

3(21)(A)(i) of the Act)1, plan participant or beneficiary, IRA, or IRA owner the following 

types of advice in exchange for a fee or other compensation, whether direct or indirect: 

(i) A recommendation as to the advisability of acquiring, holding, disposing or 

exchanging securities or other property, including a recommendation to take a 

distribution of benefits or a recommendation as to the investment of securities or 

other property to be rolled over or otherwise distributed from the plan or IRA; 

(ii) A recommendation as to the management of securities or other property, 

including recommendations as to the management of securities or other property to 

be rolled over or otherwise distributed from the plan or IRA; 

(iii) An appraisal, fairness opinion, or similar statement whether verbal or 

written concerning the value of securities or other property if provided in connection 

with a specific transaction or transactions involving the acquisition, disposition, or 

exchange, of such securities or other property by the plan or IRA;2

(iiiiv) A recommendation as to the advisability of engaging of a person who is 

also going to receive a fee or other compensation for providing any of the types of 

 

We have not endeavored to rewrite the entire Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Investment Advice (“Re-Proposed Rule”). Instead, our changes are focused on sections where we 

understood the Department may be flexible and where we believe alterations in any final rule are most 

needed. The revisions we offer herein also incorporate changes to the text of the Re-Proposed Rule 

recommended by other commenters. Our citations to the comments of other parties are not an endorsement 

of their past or future comments beyond what we have specifically included.

1 See Correspondence from David M. Carroll, Senior Executive Vice President, Wealth, Brokerage & Retirement, 

Wells Fargo & Company, to John J. Canary, Director, Office of Regulations and Interpretations, Office of 

Exemption Determinations, Employee Benefits Security Admin., Dep’t of Labor, regarding Comments on Proposed 

Conflict of Interest Rule and Related Proposals [RIN: 1210-AB32 and ZRIN: 1210-ZA25] (July 21, 2015) (“Wells 

Fargo July 21 Letter”), at App. A, pp 2-3 (§ I.A.i.), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-

00647.pdf).

2 See Wells Fargo July 21 Letter, at App. A, pp 8-9 (§ I.D.); Correspondence from Lisa J. Bleier, Managing 

Director, Federal Government Relations and Associate General Counsel, Securities Industry and Financial Markets 

Association, to Office of Regulations and Interpretations, Employee Benefits Security Admin., Dep’t of Labor, 

regarding RIN: 1210-AB32 (July 20, 2015) (“SIFMA Definition of Fiduciary Letter”), at 12-18, available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00506.pdf.
Wells Fargo & Co.

Appendix B

2

advice described in section 3(21)(A)(i) or (ii) of the Actparagraphs (i) through (iii);

3

and 

(2) Such person, either directly or indirectly (e.g., through or together with any 

affiliate),4—

(i) Expressly states Represents or acknowledges that it is acting as a fiduciary 

within the meaning of the Act with respect to the advice described in paragraph 

(a)(1) of this section that is or will be provided with respect to a particular account in 

connection with a particular recommendation of an investment transaction or series 

of recommendations regarding such a transaction or series of transactions, provided 

that the express acknowledgement of fiduciary status with respect to a particular 

transaction, account or recommendation will not, by itself, cause the person to 

become a fiduciary with respect to any other transaction, account or 

recommendation5; or 

(ii) Renders the advice pursuant to a written or verbal agreement, arrangement 

or mutual6 understanding that the advice is individualized to, or that such advice is 

specifically directed and individually tailored7 to, the advice recipient as the primary 

basis for consideration in8 making investment or management decisions with respect 

to securities or other property of the plan or IRA.9

 3 See SIFMA Definition of Fiduciary Letter, at 18.

4 See also Correspondence from Catherine J. Weatherford, President and Chief Executive Officer, Insured 

Retirement Institute, to Office of Regulations and Interpretations and Office of Exemption Determinations, 

Employee Benefits Security Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary”; Conflict of 

Interest Rule – Retirement Investment Advice, RIN 1210-AB32; Proposed Amendment to and Proposed Partial 

Revocation of Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents 

and Brokers, Pension Consultants, Insurance Companies and Investment Company Principal Underwriters, ZRIN 

1210-ZA25; Proposed Best Interest Contract Exemption, ZRIN 1210-ZA25 (July 21, 2015) (“IRI Letter”), at 19, 

available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00626.pdf.

5 SIFMA Definition of Fiduciary Letter, at 27.

6 See Wells Fargo July 21 Letter, at App. A, p. 3 (§ I.A.ii.).

7 See id. (§ I.A.iii.).

8 See id., at p. 4 (§ I.A.iii.). 

9 Alternatively:

(ii) Renders the advice in a manner where the advice recipient reasonably believes that such person is acting 

in their best interest in providing such pursuant to a written or verbal agreement, arrangement or understanding that 

the advice and is not acting in an educational, marketing or sales capacity. This determination is based on the 

relevant facts and circumstances. Under this clause, relevant factors include the individualized nature of the advice 

provided, the reliance placed on it by the advice recipient and any disclosures provided to the advice recipient; 

however, no single factor shall be determinativeis individualized to, or that such advice is specifically directed to, 

the advice recipient for consideration in making investment or management decisions with respect to securities or 

other property of the plan or IRA. 

See Correspondence from Anne Cooney, Managing Director and General Counsel of Morgan Stanley Wealth 

Management to Office of Regulations and Interpretations and Office of Exemption Determinations, Employee 

Benefits Security Admin., Dep’t of Labor, regarding Comments on the Department’s Fiduciary Definition Proposal, 

ZRIN 1210-ZA25; RIN 1210-AB32 (July 21, 2015) (“Morgan Stanley Letter”), at 6, available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00662.pdf; Correspondence from David M. Abbey, Deputy General 
Wells Fargo & Co.

Appendix B

3

(b) Carve-outs – investment advice. Except for persons advice described in paragraph 

(a)(1) of this section with respect to which the person has represented or acknowledged that it is 

acting as a fiduciary as 10described in paragraph (a)(2)(i) of this section with respect to a 

particular account (or particular assets in an account) and a particular transaction11, the rendering 

of advice or other communications in conformance with a carve-out set forth in paragraph (b)(1) 

through (96) of this section shall not cause the person who renders the advice to be treated as a 

fiduciary under paragraph (a) of this section. 

(1) Counterparties to the plan—

(i) Counterparty transaction with plan fiduciary with financial expertise. 

(A) In such person’s capacity as a counterparty (or representative of a 

counterparty) to an employee benefit plan (as described in section 3(3) of the 

Act) or to any plan described in section 4975(e)(1) of the Code12, the person 

provides advice to a plan fiduciary who is independent of such person and who 

exercises authority or control with respect to the management or disposition of 

the plan’s assets, with respect to an arm’s length sale, purchase, loan, provision 

of services13 or bilateral contract between the plan and the counterparty, or 

with respect to a proposal to enter into such a sale, purchase, loan or bilateral 

contract, if, prior to providing any recommendation with respect to the 

transaction, such person satisfies the requirements of either paragraph 

(b)(1)(i)(B) or (C) of this section. 

(B) Such person—

(1) Knows or reasonably believes that14 Obtains a written 

representation from the independent plan fiduciary that the independent 

fiduciary exercises authority or control with respect to the management 

or disposition of the employee benefit plan’s assets (as described in 

section 3(21)(A)(i) of the Act), that the employee benefit plan has 100 or 

 

Counsel – Retirement Policy, and David W. Blass, General Counsel, Investment Company Institute to Office of 

Regulations and Interpretations and Office of Exemption Determinations, Employee Benefits Security Admin., 

Dep’t of Labor, regarding RIN 1210-AB3: Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Investment Advice (July 21, 2015) (“ICI Letter”), at 9, available at: http://www.dol.gov/ebsa/pdf/1210-

AB32-2-00747.pdf. 

If such a change is not made, we recommend the carve-outs be expanded under § 2510.3-21(b), see infra at pp 3-7, 

“to avoid imposing ERISA fiduciary obligations on sales pitches that are part of arm’s length transactions.” 80 Fed. 

Reg. at 21941.

10 See SIFMA Definition of Fiduciary Letter, at 37.

11 See id.

12 See Wells Fargo July 21 Letter, at App. A, p. 5 (§ I.B.).

13 See Correspondence from Barbara Novick, Vice Chairman, and Patricia Anne Kuhn, Managing Director, 

BlackRock, Inc., to Office of Regulations and Interpretations and Office of Exemption Determinations, Employee 

Benefits Security Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Investment Advice (RIN 1210-AB32) and Proposed Best Interest Contract Exemption and the Proposed 

Amendments to and Proposed Partial Revocation of PTEs 86-128 and 75-1 (RIN 1210-ZA25) (July 21, 2015) 

(“BlackRock Letter”), at 15, available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00684.pdf.

14 See Wells Fargo July 21 Letter, at App. A, p. 6 (§ I.B.iii.).
Wells Fargo & Co.

Appendix B

4

more participants covered under the plan,15 and that the independent 

fiduciary will not rely on the person to act in the best interests of the 

plan, to provide impartial investment advice, or to give advice in a 

fiduciary capacity; 

(2) Fairly informs the independent plan fiduciary of the existence 

and nature of the person’s financial interests in the transaction; 

(3) Does not receive a fee or other compensation directly from the 

plan, or plan fiduciary, for the provision of investment advice (as 

opposed to other services) in connection with the transaction;16 and

(4) Knows or reasonably believes that the independent plan 

fiduciary has sufficient expertise to evaluate the transaction and to 

determine whether the transaction is prudent and in the best interest of 

the plan participants (the person may rely on written representations 

from the plan or the plan fiduciary to satisfy this subsection 

(b)(1)(i)(B)(4)). 

(C) Such person —

(1) Knows or reasonably believes that the independent plan 

fiduciary has responsibility for managing at least $100 million in 

employee benefit plan assets (for purposes of this paragraph (b)(1)(i)(C), 

when dealing with an individual employee benefit plan, a person may 

rely on the information on the most recent Form 5500 Annual 

Return/Report filed for the plan to determine the value and, in the case of 

an independent fiduciary acting as an asset manager for multiple 

employee benefit plans, a person may rely on representations from the 

independent plan fiduciary regarding the value of employee benefit plan 

assets under management); 

(2) Fairly informs the independent plan fiduciary that the person is 

not undertaking to provide impartial investment advice, or to give advice 

in a fiduciary capacity; and 

 15 See id., at p. 5 (§ I.B.i.).

16 Alternatively:

(3) Such person Does not receive a fee or other compensation directly from the plan, or plan fiduciary, for the 

provision of investment advice (as opposed to other services) in connection with the transaction;

(A) Does not receive any separate fee or other compensation directly or indirectly from the plan, or 

plan fiduciary with respect to any advice provided in connection with a proposed provision of investment 

advice or purchase of an investment fund, security or other Plan investment (as opposed to compensation 

received after such person is hired to provide investment management or advisory services or the plan or plan 

fiduciary makes an investment); or

(B) The person does not receive a fee or other compensation for the provision of investment advice 

(as opposed to other services) in connection with the transaction or proposed transaction; and

BlackRock Letter, at 15-16. 
Wells Fargo & Co.

Appendix B

5

(3) Does not receive a fee or other compensation directly from the 

plan, or plan fiduciary, for the provision of investment advice (as 

opposed to other services) in connection with the transaction.17

(C) Such person is an Accredited Investor.

18

(ii) Swap and security-based swap transactions. The person is a counterparty 

to an employee benefit plan (as described in section 3(3) of the Act) in connection 

with a swap or security-based swap, as defined in section 1(a) of the Commodity 

Exchange Act (7 U.S.C. 1(a) and section 3(a) of the Securities Exchange Act (15 

U.S.C. 78c(a)), if—

(A) The plan is represented by a fiduciary independent of the person; 

(B) The person is a swap dealer, security-based swap dealer, major swap 

participant, or major security-based swap participant; 

(C) The person (if a swap dealer or security-based swap dealer), is not 

acting as an advisor to the plan (within the meaning of section 4s(h) of the 

Commodity Exchange Act or section 15F(h) of the Securities Exchange Act of 

1934) in connection with the transaction; and 

(D) In advance of providing any recommendations with respect to the 

transaction, the person obtains a written representation from the independent 

plan fiduciary, that the fiduciary will not rely on recommendations provided by 

the person. 

(2) Employees. In his or her capacity as an employee of any employer or employee 

organization sponsoring the employee benefit plan (as described in section 3(3) of the Act), 

the person provides the advice to a plan fiduciary, and he or she receives no fee or other 

compensation, direct or indirect, in connection with the advice beyond the employee’s 

normal compensation for work performed for the employer or employee organization. 

(3) Platform providers. The person merely markets and makes available to an 

employee benefit plan (as described in section 3(3) of the Act) or to any plan described in 

section 4975(e)(1) of the Code,

19 without regard to the individualized needs of the plan, its 

participants, or beneficiaries or to an IRA or IRA owner,

20 securities or other property 

through a platform or similar mechanism from which a plan fiduciary may select or 

monitor investment alternatives, including qualified default investment alternatives, into 

which plan participants or beneficiaries may direct the investment of assets held in, or 

contributed to, their individual accounts, if the person discloses in writing to the plan 

fiduciary or IRA owner21 that the person is not undertaking to provide impartial investment 

advice or to give advice in a fiduciary capacity. The provision of sample line-ups is 

permitted in the platform marketing process so long as the sample line-ups are developed 

 17 See Wells Fargo July 21 Letter, at App. A, p. 5 (§ I.B.i.).

18 See id., at p. 5 (§ I.B.ii.).

19 See id., at pp 6-7 (§ I.C.i.); IRI Letter, at 23-24.

20 See id.

21 See id.
Wells Fargo & Co.

Appendix B

6

using objective criteria that is disclosed to the plan and are not individualized to the needs 

of the particular plan.22 

(4) Selection and monitoring assistance. In connection with the activities described 

in paragraph (b)(3) of this section with respect to an employee benefit plan (as described in 

section 3(3) of the Act) or to any plan described in section 4975(e)(1) of the Code,

23 the 

person –

(i) Merely identifies investment alternatives that meet objective criteria 

specified by the plan fiduciary (e.g., stated parameters concerning expense ratios, 

size of fund, type of asset, credit quality); or

(ii) Merely provides objective financial data and comparisons with independent 

benchmarks to the plan fiduciary; or

(iii) Merely provides objective, publicly available information so long as the 

information is not coupled with a recommendation to make a particular plan 

investment choice.

24

(5) Financial reports and valuations. The person provides an appraisal, fairness 

opinion, or statement of value, or unitization calculation of the value of an investment25 

to –

(i) An employee stock ownership plan (as defined in section 407(d)(6) of the 

Act) regarding employer securities (as defined section 407(d)(5) of the Act); 

(ii) An investment fund, such as a collective investment fund or pooled 

separate account, in which more than one unaffiliated plan has an investment, or 

which holds plan assets of more than one unaffiliated plan under 29 CFR 2510.3-

10126; or 

(iii) A plan, a plan fiduciary, a plan participant or beneficiary, an IRA or IRA 

owner solely for purposes of compliance with the reporting and disclosure provisions 

under the Act, the Code, and the regulations, forms and schedules issued thereunder, 

or any applicable reporting or disclosure requirement under a Federal or state law, 

rule or regulation or self-regulatory organization rule or regulation.

(6) Hiring and referrals. The person merely recommends, urges, responds to request 

for proposals regarding or otherwise promotes its or an affiliate’s own hiring.27

(7) Information sharing that is not investment advice. The person is acting in an 

educational, marketing or sales capacity and provides information where, under the 

 22 See Wells Fargo July 21 Letter, at App. A, pp 7-8 (§ I.C.iii.). 

23 See Wells Fargo July 21 Letter, at App. A, pp 6-7 (§ I.C.i.); IRI Letter, at 23-24.

24 See Wells Fargo July 21 Letter, at App. A, p. 7 (§ I.C.ii.).

25 See id., at pp 8-9 (§ I.D.) (recommended should the Department retain § 2510.3-21(a)(1)(iii)).

26 See id., at pp 8-9, note 16 (§ I.D.).

27 See id., at pp 5-8 (§§ I.B. and C.); SIFMA Definition of Fiduciary Letter, at 38; Morgan Stanley Letter, at 9; see 

also SEC, Rule 206(4)-3, Investment Advisers Act of 1940, Cash Payments for Client Solicitations (codified at 17 

C.F.R. pt. 275.206(4)-3).
Wells Fargo & Co.

Appendix B

7

relevant facts and circumstances, there can be no reasonable expectation on the part of the 

recipient of the information that such person is acting in recipient’s best interest in 

providing such information. Under this carve-out, the relevant factors include the 

individualized nature of the information provided, the reliance placed on it by the recipient

of the information and any disclosures provided to the recipient of the information; 

however, no single factor shall be determinative.28

(8) Products and services addressing conflict issues under existing regulations. The 

person provides recommendations or advice with respect to products or services that do not 

present conflicts of interest (due to compliance with prohibited transaction exemptions or 

otherwise) should not be considered fiduciary investment advice that requires compliance 

with an additional exemption.29

(96) Investment education. The person furnishes or makes available any of the 

following categories of investment-related information and materials described in 

paragraphs (b)(96)(i) through (viv) of this section to a plan, plan fiduciary, participant or 

beneficiary, IRA or IRA owner irrespective of who provides or makes available the 

information and materials (e.g., plan sponsor, fiduciary or service provider), the frequency 

with which the information and materials are provided, the form in which the information 

and materials are provided (e.g., on an individual or group basis, in writing or orally, or via 

call center, video or computer software), or whether an identified category of information 

and materials is furnished or made available alone or in combination with other categories 

of information and materials identified in paragraphs (b)(96)(i) through (viv), provided that 

the information and materials do not include (standing alone or in combination with other 

materials) recommendations with respect to specific investment products or specific plan 

or IRA alternatives, or recommendations on investment, management, or value of a 

particular security or securities, or other property.

30

(i) Plan information. Information and materials that, without reference to the 

appropriateness of any individual investment alternative or any individual benefit 

distribution option for the plan or IRA, or a particular participant or beneficiary or 

IRA owner, describe the investment products and services available,31 the terms or 

operation of the plan or IRA, inform a plan fiduciary, participant, beneficiary, or IRA 

owner about the benefits of plan or IRA participation, the benefits of increasing plan 

or IRA contributions, the impact of preretirement withdrawals on retirement income, 

 28 See Wells Fargo July 21 Letter, at App. A, pp 2-3 (§ I.A.i.); Morgan Stanley Letter, at 6, ICI Letter, at 9; see also 

supra at p. 2, note 9. 

29 See Wells Fargo July 21 Letter, at App. A, p. 24 (§ II.D.v.).

30 See id., at pp 9-11 (§ I.E.i.); Dep’t of Labor, Pension and Welfare Benefits Admin., Interpretive Bulletin 96-1,

Participant Investment Education; Final Rule, 61 Fed. Reg. 29586 (June 11, 1996) (codified at 29 C.F.R. pt. 2509) 

(“Dep’t of Labor IB 96-1”), available at: http://www.gpo.gov/fdsys/pkg/FR-1996-06-11/pdf/96-14093.pdf.

31 See Correspondence from Christopher Gilkerson, Senior Vice President and General Counsel, and Gail B. 

Mayland, Vice President and Associate General Counsel, Charles Schwab & Co., Inc., to Office of Regulations and 

Interpretations, Employee Benefits Security Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary” 

(RIN 1210-AB32); Best Interest Contract Exemption (ZRIN 1210-ZA-25); Principal Transaction in Certain Debt 

Securities Exemption (ZRIN 1210-ZA-25) (July 20, 2015) (“Charles Schwab Letter”), at 35, available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00571.pdf.
Wells Fargo & Co.

Appendix B

8

retirement income needs, the benefits of32 varying forms of distributions, including 

rollovers, annuitization and other forms of lifetime income payment options (e.g., 

immediate annuity, deferred annuity, or incremental purchase of deferred annuity), 

advantages, disadvantages and risks of different forms of distributions, or describe 

investment objectives and philosophies, risk and return characteristics, historical 

return information or related prospectuses of investment alternatives under the plan 

or IRA. 

(ii) General financial, investment and retirement information. Information and 

materials on financial, investment and retirement matters that do not address specific 

investment products, specific plan or IRA alternatives or distribution options 

available to the plan or IRA or to participants, beneficiaries and IRA owners, or 

specific alternatives or services offered outside the plan or IRA, and inform the plan 

fiduciary, participant or beneficiary, or IRA owner33 about —

(A) General financial and investment concepts, such as risk and return, 

diversification, dollar cost averaging, compounded return, and tax deferred 

investment; 

(B) Historic differences in rates of return between different asset classes 

(e.g., equities, bonds, or cash) based on standard market indices; 

(C) Effects of inflation; 

(D) Estimating future retirement income needs; 

(E) Determining investment time horizons; 

(F) Assessing risk tolerance; 

(G) Retirement-related risks (e.g., longevity risks, market/interest rates, 

inflation, health care and other expenses); and 

(H) General methods and strategies for managing assets in retirement 

(e.g., systematic withdrawal payments, annuitization, guaranteed minimum 

withdrawal benefits), including those offered outside the plan or IRA. 

(iii) Asset allocation models. Information and materials (e.g., pie charts, 

graphs, or case studies) that provide a plan fiduciary, participant or beneficiary, or 

IRA owner with models of asset allocation portfolios of hypothetical individuals 

with different time horizons (which may extend beyond an individual’s retirement 

date) and risk profiles, where —

(A) Such models are based on generally accepted investments theories 

that take into account the historic returns of different asset classes (e.g., 

equities, bonds, or cash) over defined periods of time; 

(B) All material facts and assumptions on which such models are based 

(e.g., retirement ages, life expectancies, income levels, financial resources, 

 32 See Charles Schwab Letter, at 35.

33 See Wells Fargo July 21 Letter, at App. A, pp 9-11 (§ I.E.i.); Dep’t of Labor IB 96-1.
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Appendix B

9

replacement income ratios, inflation rates, and rates of return) accompany the 

models;

(C) To the exent Ssuch models do not include or identify any specific 

investment product or specific alternative available under the plan or IRA, the 

models are accompanied by a statement indicating that other investment 

alternatives having similar risk and return characteristics may be available 

under the plan or IRA and identifying where information on those investment 

alternatives may be obtained34; and 

(D) The asset allocation models are accompanied by a statement 

indicating that, in applying particular asset allocation models to their individual 

situations, participants, beneficiaries, or IRA owners should consider their 

other assets, income, and investments (e.g., equity in a home, Social Security 

benefits, individual retirement plan investments, savings accounts and interests 

in other qualified and non-qualified plans) in addition to their interests in the 

plan or IRA, to the extent those items are not taken into account in the model 

or estimate. 

(iv) Interactive investment materials. Questionnaires, worksheets, software, 

and similar materials which provide a plan fiduciary, participant or beneficiary, or 

IRA owners the means to estimate future retirement income needs and assess the 

impact of different asset allocations on retirement income; questionnaires, 

worksheets, software and similar materials which allow a plan fiduciary, participant 

or beneficiary, or IRA owners to evaluate distribution options, products or vehicles

by providing information under paragraphs (b)(96)(i) and (ii) of this section; 

questionnaires, worksheets, software, and similar materials that provide a plan 

fiduciary, participant or beneficiary, or IRA owner the means to estimate a 

retirement income stream that could be generated by an actual or hypothetical 

account balance, where —

(A) Such materials are based on generally accepted investment theories 

that take into account the historic returns of different asset classes (e.g., 

equities, bonds, or cash) over defined periods of time; 

(B) There is an objective correlation between the asset allocations 

generated by the materials and the information and data supplied by the 

participant, beneficiary or IRA owner; 

(C) There is an objective correlation between the income stream 

generated by the materials and the information and data supplied by the 

participant, beneficiary or IRA owner; 

(D) All material facts and assumptions (e.g., retirement ages, life 

expectancies, income levels, financial resources, replacement income ratios, 

inflation rates, rates of return and other features and rates specific to income 

annuities or systematic withdrawal plan) that may affect a participant’s, 

beneficiary’s or IRA owner’s assessment of the different asset allocations or 

 34 See id.
Wells Fargo & Co.

Appendix B

10

different income streams accompany the materials or are specified by the 

participant, beneficiary or IRA owner;

(E) To the extent that such The materials do not include or identify any 

specific investment alternative available or distribution option available under 

the plan or IRA, unless such alternative or option is specified by the 

participant, beneficiary or IRA owner the materials are accompanied by a 

statement indicating that other investment alternatives having similar risk and 

return characteristics may be available under the plan or IRA and identifying 

where information on those investment alternatives may be obtained35; and 

(F) The materials either take into account other assets, income and 

investments (e.g., equity in a home, Social Security benefits, individual 

retirement account/ annuity investments, savings accounts, and interests in 

other qualified and non-qualified plans) or are accompanied by a statement 

indicating that, in applying particular asset allocations to their individual 

situations, or in assessing the adequacy of an estimated income stream, 

participants, beneficiaries or IRA owners should consider their other assets, 

income, and investments in addition to their interests in the plan or IRA.36

(v) Rollover education. Oral or written information which does not include 

recommendations or advice but merely lays out the following considerations, each of 

which must be mentioned without biased emphasis: 

(A) Investment options. An IRA often enables an investor to select from 

a broader range of investment options than a plan. The importance of this 

factor will depend in part on how satisfied the investor is with the options 

available under the plan under consideration. For example, an investor who is 

satisfied by the low-cost institutional funds available in some plans may not 

regard an IRA’s broader array of investments as an important factor. 

(B) Fees and expenses. Both plans and IRAs typically involve (i) 

investment-related expenses and (ii) plan or account fees. Investment-related 

expenses may include sales loads, commissions, the expenses of any mutual 

funds in which assets are invested and investment advisory fees. Plan fees 

typically include plan administrative fees (e.g., recordkeeping, compliance, 

trustee fees) and fees for services such as access to a customer service 

representative. In some cases, employers pay for some or all of the plan’s 

administrative expenses. An IRA’s account fees may include, for example, 

administrative, account set-up and custodial fees. 

 35 See Wells Fargo July 21 Letter, at App. A, pp 9-11 (§ I.E.i.); Dep’t of Labor IB 96-1.

36 See Charles Schwab Letter, at 37, also recommends the addition of the following subclause:

(v) Portfolio tools for self-directed investors. Securities research reports or ratings, investment screeners and 

planners, and portfolio analyzers, whether made available through a “brokerage window,” self-directed brokerage 

account or otherwise, that allow a plan fiduciary, participant or beneficiary, or IRA owner to analyze their current or 

potential investment alternatives to help them make their own investment decisions, provided that the portfolio tools 

do not make recommendations as to the appropriateness of any individual investment products for the plan or IRA 

or a particular participant or beneficiary or IRA owner.
Wells Fargo & Co.

Appendix B

11

(C) Services. An investor may wish to consider the different levels of 

service available under each option. Some plans, for example, provide access 

to investment advice, planning tools, telephone help lines, educational 

materials and workshops. Similarly, IRA providers offer different levels of 

service, which may include full brokerage service, investment advice, 

distribution planning and access to securities execution online. 

(D) Penalty-free withdrawals. If an employee leaves her job between 

age 55 and 591⁄2, she may be able to take penalty-free withdrawals from a plan. 

In contrast, penalty-free withdrawals generally may not be made from an IRA 

until age 591⁄2. 

(E) Protection from creditors and legal judgments. Generally speaking, 

plan assets have unlimited protection from creditors under federal law, while 

IRA assets are protected in bankruptcy proceedings only. State laws vary in 

the protection of IRA assets in lawsuits. 

(F) Required minimum distributions. Once an individual reaches age 

701⁄2, the rules for both plans and IRAs require the periodic withdrawal of 

certain minimum amounts, known as the required minimum distribution. If a 

person is still working at age 701⁄2, however, he generally is not required to 

make required minimum distributions from his current employer’s plan. This 

may be advantageous for the increasing population of Americans who plan to 

work into their 70s. 

(G) Employer stock. An investor who holds significantly appreciated 

employer stock in a plan should consider the negative tax consequences of 

rolling the stock to an IRA. If employer stock is transferred in-kind to an IRA, 

stock appreciation will be taxed as ordinary income upon distribution. The tax 

advantages of retaining employer stock in a non-qualified account should be 

balanced with the possibility that the investor may be excessively concentrated 

in employer stock. It can be risky to have too much employer stock in one’s 

retirement account; for some investors, it may be advisable to liquidate the 

holdings and roll over the value to an IRA, even if it means losing long-term 

capital gains treatment on the stock’s appreciation.37

(viv) The information and materials described in paragraphs (b)( 96)(i) through 

(viv) of this section represent examples of the type of information and materials that 

may be furnished to plans, plan fiduciaries, participants, beneficiaries and IRA 

owners without such information and materials constituting investment advice. 

Determinations as to whether the provision of any information, materials or 

educational services not described herein constitutes the rendering of investment 

advice must be made by reference to the criteria set forth in paragraph (a) of this 

section.

 37 See Wells Fargo July 21 Letter, at App. A, p. 12, note 21 (§ I.E.ii.); FINRA, Regulatory Notice 13-45, Rollovers 

to Individual Retirement Accounts (Dec. 2013), at 2-3, available at: https://www.finra.org/sites/default/files/

NoticeDocument/p418695.pdf.
Wells Fargo & Co.

Appendix B

12

(c) Scope of fiduciary duty – investment advice. A person who is a fiduciary with respect 

to an employee benefit plan or IRA by reason of rendering investment advice (as defined in 

paragraph (a) of this section) for a fee or other compensation, direct or indirect, with respect to 

any securities or other property of such plan, or having any authority or responsibility to do so, 

shall not be deemed to be a fiduciary regarding any assets of the plan or IRA with respect to 

which such person does not have any discretionary authority, discretionary control or 

discretionary responsibility, does not exercise any authority or control, does not render 

investment advice (as defined in paragraph (a)(1) of this section) for a fee or other compensation, 

and does not have any authority or responsibility to render such investment advice, provided that 

nothing in this paragraph shall be deemed to: 

(1) Exempt such person from the provisions of section 405(a) of the Act concerning 

liability for fiduciary breaches by other fiduciaries with respect to any assets of the plan; or 

(2) Exclude such person from the definition of the term “party in interest” (as set 

forth in section 3(14)(B) of the Act or “disqualified person” as set forth in section 

4975(e)(2) of the Code) with respect to a plan. 

(d) Execution of securities transactions. 

(1) A person who is a broker or dealer registered under the Securities Exchange Act 

of 1934, a reporting dealer who makes primary markets in securities of the United States 

Government or of an agency of the United States Government and reports daily to the 

Federal Reserve Bank of New York its positions with respect to such securities and 

borrowings thereon, or a bank supervised by the United States or a State, shall not be 

deemed to be a fiduciary, within the meaning of section 3(21)(A) of the Act or section 

4975(e)(3)(B) of the Code, with respect to an employee benefit plan or IRA solely because 

such person executes transactions for the purchase or sale of securities on behalf of such 

plan in the ordinary course of its business as a broker, dealer, or bank, pursuant to 

instructions of a fiduciary with respect to such plan or IRA, if: 

(i) Neither the fiduciary nor any affiliate of such fiduciary is such broker, 

dealer, or bank; and 

(ii) The instructions specify: 

(A) The security to be purchased or sold; 

(B) A price range within which such security is to be purchased or sold, 

or, if such security is issued by an open-end investment company registered 

under the Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq.), a price 

which is determined in accordance with Rule 22c1 under the Investment 

Company Act of 1940 (17 CFR270.22c1); 

(C) A time span during which such security may be purchased or sold 

(not to exceed five business days); and 

(D) The minimum or maximum quantity of such security which may be 

purchased or sold within such price range, or, in the case of a security issued 

by an open-end investment company registered under the Investment Company 

Act of 1940, the minimum or maximum quantity of such security which may 

be purchased or sold, or the value of such security in dollar amount which may 
Wells Fargo & Co.

Appendix B

13

be purchased or sold, at the price referred to in paragraph (d)(1)(ii)(B) of this 

section. 

(2) A person who is a broker-dealer, reporting dealer, or bank which is a fiduciary 

with respect to an employee benefit plan or IRA solely by reason of the possession or 

exercise of discretionary authority or discretionary control in the management of the plan 

or IRA, or the management or disposition of plan or IRA assets in connection with the 

execution of a transaction or transactions for the purchase or sale of securities on behalf of 

such plan or IRA which fails to comply with the provisions of paragraph (d)(1) of this 

section, shall not be deemed to be a fiduciary regarding any assets of the plan or IRA with 

respect to which such brokerdealer, reporting dealer or bank does not have any 

discretionary authority, discretionary control or discretionary responsibility, does not 

exercise any authority or control, does not render investment advice (as defined in 

paragraph (a) of this section) for a fee or other compensation, and does not have any 

authority or responsibility to render such investment advice, provided that nothing in this 

paragraph shall be deemed to: 

(i) Exempt such broker-dealer, reporting dealer, or bank from the provisions of 

section 405(a) of the Act concerning liability for fiduciary breaches by other 

fiduciaries with respect to any assets of the plan; or 

(ii) Exclude such broker-dealer, reporting dealer, or bank from the definition of 

the term party in interest (as set forth in section 3(14)(B) of the Act) or disqualified 

person 4975(e)(2) of the Code with respect to any assets of the plan or IRA. 

(e) Internal Revenue Code. Section 4975(e)(3) of the Code contains provisions parallel to 

section 3(21)(A) of the Act which define the term “fiduciary” for purposes of the prohibited 

transaction provisions in Code section 4975. Effective December 31, 1978, section 102 of the 

Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 237 transferred the authority of the Secretary 

of the Treasury to promulgate regulations of the type published herein to the Secretary of Labor. 

120 All references herein to section 3(21)(A) of the Act should be read to include reference to 

the parallel provisions of section 4975(e)(3) of the Code. Furthermore, the provisions of this 

section shall apply for purposes of the application of Code section 4975 with respect to any plan 

described in Code section 4975(e)(1). 

(f) Definitions. For purposes of this section—

(1) “Recommendation” means

(i) Aa communication that, based on its content, context, and presentation, 

would reasonably be viewed as a call to take action or to refrain from taking

suggestion that the advice recipient engage in or refrain from taking a particular 

course of action38; and

(ii) With respect to a Financial Institution or Adviser that recommends a 

transaction or investment strategy involving a security or securities, 

“recommendation” shall have the same meaning as Financial Industry Regulatory 

 38 See Wells Fargo July 21 Letter, at App. A, p. 2 (§§ I.A.); IRI Letter, at 18. 
Wells Fargo & Co.

Appendix B

14

Authority (FINRA) Rule 2111 (Suitability) or any successor rule, as interpreted by 

FINRA. 39

(2)

(i) “Plan” means any employee benefit plan described in section 3(3) of the 

Act and any plan described in section 4975(e)(1)(A) of the Code, and 

(ii) “IRA” means any trust, account or annuity described in Code section 

4975(e)(1)(B) through (CF), including, for example, an individual retirement account 

described in section 408(a) of the Code and a health savings account described in 

section 223(d) of the Code.

40

(3) “Plan participant” means for a plan described in section 3(3) of the Act, a person 

described in section 3(7) of the Act. 

(4) “IRA owner” means with respect to an IRA either the person who is the owner of 

the IRA or the person for whose benefit the IRA was established. 

(5) “Plan fiduciary” means a person described in section (3)(21) of the Act and 

4975(e)(3) of the Code. 

(6) “Fee or other compensation, direct or indirect” for purposes of this section and 

section 3(21)(A)(ii) of the Act, means any fee or compensation for the advice received by 

the person (or by an affiliate) from any source and any fee or compensation incident to the 

transaction in which the investment advice has been rendered or will be rendered. The term 

fee or other 121 compensation includes, for example, brokerage fees, mutual fund and 

insurance sales commissions. 

(7) “Affiliate” includes: any person directly or indirectly, through one or more 

intermediaries, controlling, controlled by, or under common control with such person; any 

officer, director, partner, employee or relative (as defined in section 3(15) of the Act) of 

such person; and any corporation or partnership of which such person is an officer, director 

or partner. 

(8) “Control” for purposes of paragraph (f)(7) of this section means the power to 

exercise a controlling influence over the management or policies of a person other than an 

individual.

 39 See Wells Fargo July 21 Letter, at App. A, pp 2 and 4 (§§ I.A.i. and iv.); Correspondence from Marcia E. Asquith, 

Senior Vice President and Corporate Secretary, Financial Industry Regulatory Authority, to Office of Regulations 

and Interpretations and Office of Exemption Determinations, Employee Benefits Security Admin., Dep’t of Labor, 

regarding Proposed Conflict of Interest Rule and Related Proposals, RIN 1210-AB32 (July 17, 2015), at 13, 

available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00405.pdf.

40 See Wells Fargo July 21 Letter, at App. A, pp 12-14 (§§ I.F.i. and ii.). This change to the definition of “IRA” was 

also made in Appendices C and D to this letter.
Wells Fargo & Co.

Appendix B

15

(9) “Accredited Investor” means any person or entity as defined under Rule 501(a) of 

Regulation D of the Securities Act of 1933 or any applicable state law.

41

 41 See id., at p. 5 (§ I.B.ii.). For example, the definition of “accredited investor” under Rule 501, Regulation D, 

Securities Act of 1933, Definitions and Terms Used in Regulation D (17 CFR 230.501 (a)) includes:

(1) [A]ny employee benefit plan within the meaning of [the Act] if the investment decision is made by a plan 

fiduciary...

(5) Any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds 

$1,000,000...

(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent 

years or joint income with that person's spouse in excess of $300,000 in each of those years and has a 

reasonable expectation of reaching the same income level in the current year.
Wells Fargo & Co.

Appendix C

1

WELLS FARGO’S RECOMMENDED CHANGES TO 

PROPOSED BEST INTEREST CONTRACT EXEMPTION

Section I – Best Interest Contract Exemption

(a) In general. ERISA and the Internal Revenue Code prohibit fiduciary advisers to 

employee benefit plans (Plans) and individual retirement plans (IRAs) from receiving 

compensation that varies based on their investment recommendations. Similarly, fiduciary 

advisers are prohibited from receiving compensation from third parties in connection with their 

advice. This exemption permits certain persons who provide investment advice to Retirement 

Investors, and their associated financial institutions, affiliates and other related entities, to 

receive such otherwise prohibited compensation as described below. 

(b) Covered transactions. This exemption permits Advisers, Financial Institutions, and 

their Affiliates and Related Entities to receive compensation for services provided in connection 

with a purchase, sale or holding of an Asset by a Plan, participant or beneficiary account, or IRA, 

as a result of the Adviser’s and Financial Institution’s advice to any of the following “Retirement 

Investors:” 

(1) A participant or beneficiary of a Plan subject to Title I of ERISA with authority 

to direct the investment of assets in his or her Plan account or to take a distribution; 

(2) The beneficial owner of an IRA acting on behalf of the IRA; or 

(3) A plan sponsor as described in ERISA section 3(16)(B) (or any employee, officer 

or director thereof) of a non-participant-directed Plan subject to Title I of ERISA with 

fewer than 100 participants,

1 to the extent it acts as a fiduciary who has authority to make 

investment decisions for the Plan. 

As detailed below, parties seeking to rely on the exemption must contractually agree to 

adhere to Impartial Conduct Standards in rendering advice regarding Assets; warrant that they 

have adopted policies and procedures designed to mitigate the dangers posed by Material 

Conflicts of Interest; disclose important information relating to fees, compensation, and Material 

Conflicts of Interest; and retain documents and data relating to investment recommendations 

regarding Assets. The exemption provides relief from the restrictions of ERISA section 

406(a)(1)(D) and 406(b) and the sanctions imposed by Code section 4975(a) and (b), by reason 

of Code section 4975(c)(1)(D), (E) and (F). The Adviser and Financial Institution must comply 

with the conditions of Sections II-V to rely on this exemption. 

 

We have not endeavored to rewrite the entire Best Interest Contract Exemption (“BIC Exemption”). Instead, 

our changes are focused on sections where we understood the Department may be flexible and where we 

believe alterations in any final exemption are most needed. The revisions we offer herein also incorporate 

changes to the text of the BIC Exemption recommended by other commenters. Our citations to the comments 

of other parties are not an endorsement of their past or future comments beyond what we have specifically 

included.

1 See Correspondence from David M. Carroll, Senior Executive Vice President, Wealth, Brokerage & Retirement, 

Wells Fargo & Company, to John J. Canary, Director, Office of Regulations and Interpretations, Office of 

Exemption Determinations, Employee Benefits Security Admin., U.S. Dep’t of Labor, regarding Comments on 

Proposed Conflict of Interest Rule and Related Proposals [RIN: 1210-AB32 and ZRIN: 1210-ZA25] (July 21, 2015) 

(“Wells Fargo July 21 Letter”), at App. A, p. 5 (§ I.B.i.), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-

00647.pdf.
Wells Fargo & Co.

Appendix C

2

(c) Exclusions. This exemption does not apply if: 

(1) The Plan is covered by Title I of ERISA, and 

(i) the Adviser, Financial Institution or any Affiliate is the employer of 

employees covered by the Plan, or

(ii) the Adviser or Financial Institution is a named fiduciary or plan 

administrator (as defined in ERISA section 3(16)(A)) with respect to the Plan, or an 

affiliate thereof, that was selected to provide advice to the Plan by a fiduciary who is 

not Independent; 

(2) The compensation is received as a result of a transaction in which the Adviser is 

acting on behalf of its own account or the account of the Financial Institution, or the 

account of a person directly or indirectly, through one or more intermediaries, controlling, 

controlled by, or under common control with the Financial Institution (i.e., a principal 

transaction); 

(3) The compensation is received as a result of investment advice to a Retirement 

Investor generated solely by an interactive website in which computer software-based 

models or applications provide investment advice based on personal information each 

investor supplies through the website without any personal interaction or advice from an 

individual Adviser (i.e., “robo advice”); or 

(4) The Adviser 

(i) exercises any discretionary authority or discretionary control respecting 

management of the Plan or IRA assets involved in the transaction or exercises any 

authority or control respecting management or disposition of the assets, or 

(ii) has any discretionary authority or discretionary responsibility in the 

administration of the Plan or IRA. 

(d) Good faith. Notwithstanding any other provision to the contrary, the failure to comply 

with any term, condition or requirement of this exemption will not result in the loss of the 

exemption if the failure to comply was insignificant and a good faith and reasonable attempt was 

made to comply with all applicable terms, conditions and requirements.2

Section II – Contract, Impartial Conduct, and Other Requirements

(a) Contract. Prior to the transaction for which relief is sought under Section I, 

recommending that the Plan, participant or beneficiary account, or IRA purchase, sell or hold the 

Asset, either the Adviser orand Financial Institution with primary responsibility for oversight of 

the Adviser, as appropriate, provide an enforceable agreement (under applicable law) to enter 

 2 See Wells Fargo July 21 Letter, at App. A, p. 33 (§ IV); Correspondence from Marcia E. Asquith, Senior Vice 

President and Corporate Secretary, Financial Industry Regulatory Authority, to Office of Regulations and 

Interpretations and Office of Exemption Determinations, Employee Benefits Security Admin., Dep’t of Labor, 

regarding Proposed Conflict of Interest Rule and Related Proposals, RIN 1210-AB32 (July 17, 2015) (“FINRA 

Letter”), at 20, available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00405.pdf.
Wells Fargo & Co.

Appendix C

3

into a written contract with the Retirement Investor that incorporates the terms required by 

Section II(b)- (de).3

(b) Fiduciary. The agreement written contract 4affirmatively states that the Adviser and 

Financial Institution are fiduciaries under ERISA or the Code, or both, with respect to any 

investment recommendations to the Retirement Investor. 

(c) Impartial Conduct Standards. The Adviser and the Financial Institution affirmatively 

agree to, and comply with,5 the following:

(1) When providing investment advice to the Retirement Investor regarding the 

Asset, the Adviser and Financial Institution will provide investment advice that is in the 

Best Interest of the Retirement Investor (i.e., advice that considers the Retirement 

Investor’s investment profile as well as product- or strategy-related factors in addition to 

cost, such as the product’s or strategy’s investment objectives, characteristics (including 

any special or unusual features), liquidity, risks and potential benefits, volatility and likely 

performance in a variety of market and economic conditions reflects the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent person 

would exercise based on the investment objectives, risk tolerance, financial circumstances, 

and needs of the Retirement Investor, without regard to the financial or other interests of 

the Adviser, Financial Institution or any Affiliate, Related Entity, or other party6); 

 3 See Wells Fargo July 21 Letter, at App. A, pp 15-18 (§ II.A.); FINRA, Regulatory Notice 12-55, Suitability (Dec. 

2012), at 2 (FAQ 6(a)), available at: https://www.finra.org/sites/default/files/NoticeDocument/p197435.pdf; 

Correspondence from Catherine J. Weatherford, President and Chief Executive Officer, Insured Retirement Institute, 

to Office of Regulations and Interpretations and Office of Exemption Determinations, Employee Benefits Security 

Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary”; Conflict of Interest Rule – Retirement 

Investment Advice, RIN 1210-AB32; Proposed Amendment to and Proposed Partial Revocation of Prohibited 

Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies and Investment Company Principal Underwriters, ZRIN 1210-ZA25; Proposed 

Best Interest Contract Exemption, ZRIN 1210-ZA25 (July 21, 2015) (“IRI Letter”), at 38, available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00626.pdf.

4 See supra note 3.

5 See IRI Letter, at 43.

6 See Wells Fargo July 21 Letter, at App. A, pp 18-20 (§ II.B.i.); FINRA, Regulatory Notice 12-25, Suitability (May 

2012), at 3 (FAQ 1), available at: https://www.finra.org/sites/default/files/NoticeDocument/p126431.pdf; Dep’t of 

Labor, Employee Benefits Security Admin., Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee 

Disclosure, 72 Fed. Reg. 70988, at 70993 (proposed Dec. 13, 2007) (to be codified at 29 C.F.R. pt. 2550). 

Alternatively:

(1) When providing investment advice to the Retirement Investor regarding the Asset, the Adviser and 

Financial Institution will provide investment advice that is in the Best Interest of the Retirement Investor (i.e., (i) 

provide advice with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent 

person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like 

character and with like aims and (ii) solely in the interest of the Retirement Investor, in each case as such standards 

are interpreted under Section 404 of ERISA advice that reflects the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent person would exercise based on the investment objectives, risk 

tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the financial or other 

interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party); 

See Correspondence from Edward Van Dolsen, Executive Vice President, President of Retirement and Individual 

Financial Services, TIAA CREF Financial Services, to Office of Regulations and Interpretations, Employee Benefits 
Wells Fargo & Co.

Appendix C

4

(2) When providing investment advice to the Retirement Investor regarding the 

Asset, the Adviser and Financial Institution will not recommend an Asset if the total 

amount of compensation anticipated to be received by the Adviser, Financial Institution, 

Affiliates and Related Entities in connection with the purchase, sale or holding of the Asset 

by the Plan, participant or beneficiary account, or IRA, will exceed Rreasonable 

Ccompensation in relation to the total services they provide to the Retirement Investor7;

and 

(3) The Adviser’s and Financial Institution’s statements about the Asset, fees, 

Material Conflicts of Interest, and any other matters relevant to a Retirement Investor’s 

investment decisions, will not be misleading. 

(d) Warranties. The Adviser and Financial Institution affirmatively warrant the following: 

(1) The Adviser, Financial Institution, and Affiliates will comply with all applicable 

federal and state laws regarding the rendering of the investment advice, the purchase, sale 

and holding of the Asset, and the payment of compensation related to the purchase, sale 

and holding of the Asset; 

(2) The Financial Institution has adopted written policies and procedures reasonably 

designed to mitigate the impact of Material Conflicts of Interest and ensure that its 

individual Advisers adhere to the Impartial Conduct Standards set forth in Section II(c); 

(3) In formulating its policies and procedures, the Financial Institution has 

specifically identified Material Conflicts of Interest and adopted measures to prevent the 

Material Conflicts of Interest from causing violations of the Impartial Conduct Standards 

set forth in Section II(c); and 

(4) Neither the Financial Institution nor (to the best of its knowledge) any Affiliate or 

Related Entity uses quotas, appraisals, performance or personnel actions, bonuses, 

contests, special awards, differential compensation or other actions or incentives to the 

extent they would tend to encourage individual Advisers to make recommendations that 

are not in the Best Interest of the Retirement Investor. Notwithstanding the foregoing, the 

contractual warranty set forth in this Section II(d)(4) does not prevent the Financial 

Institution or its Affiliates and Related Entities from providing Advisers with differential 

compensation based on investments by Plans, participant or beneficiary accounts, or IRAs, 

to the extent such compensation would not encourage advice that runs counter to the Best 

Interest of the Retirement Investor (e.g., differential compensation based on such neutral 

factors as the difference in time and analysis necessary to provide prudent advice with 

respect to different types of investments would be permissible).8

 

Security Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Advice; Proposed Rule (RIN 1210-AB32), Proposed Best Interest Contract Exemption (ZRIN: 1210-

ZA25), Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 84-24 

(ZRIN: 1210-ZA25), Proposed Amendment to Prohibited Transaction Exemption 75-1 (ZRIN: 1210-ZA25), 

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 86-128 (ZRIN 

1210-ZA25) (July 20, 2015) (“TIAA-CREF Letter”), at 35, available at: http://www.dol.gov/ebsa/pdf/1210-AB32-

2-00540.pdf; see also infra note 25.

7 See Wells Fargo July 21 Letter, at App. A, pp 18-19 (§ I.B.i.).

8 See id., at 27-28 (§ II.E.). Alternatively:
Wells Fargo & Co.

Appendix C

5

(de) Disclosures. The agreement written contract9 must specifically: 

(1) Identify and disclose any Material Conflicts of Interest, which for registered 

investment advisers, could be made via Form ADV;

10

(2) Inform the Retirement Investor that the Retirement Investor has the right to 

obtain complete information about all the direct fees currently associated with the Assets in 

which it is invested (e.g., summary prospectuses, prospectuses, confirms, Financial 

Institution informational guides, and account agreements)11, including all of the direct and 

indirect fees paid payable to the Adviser, Financial Institution, and any Affiliates;

12 and 

(3) Disclose to the Retirement Investor whether the Financial Institution offers 

Proprietary Products or receives Third Party Payments with respect to the purchase, sale or 

holding of any Asset, and of the address of the website required by Section III(c) that 

discloses the compensation arrangements entered into by Advisers and the Financial 

Institution13. 

 

(d) Conditions Warranties. As a condition of this exemption, Tthe Adviser and Financial Institution 

affirmatively agree to warrant the following: 

(1) 

(12) The Financial Institution has adopted written policies and procedures reasonably designed to 

identify and mitigate the impact of Material Conflicts of Interest and ensure that its individual Advisers 

adhere to the Impartial Conduct Standards set forth in Section II(c); 

(2) If the Financial Institution or (to the best of its knowledge) any Affiliate or Related Entity pays 

any form of compensation to Advisers that varies based on the Assets that they recommend, including 

payouts based upon commissions, trail commissions or 12b-1 fees, ticket charge discounts, awards, or 

product contests, and not solely on neutral factors such as the difference in time and analysis necessary to 

provide prudent advice, then the written policies and procedures described in paragraph (1) must be 

reasonably designed to ensure that such Advisers only make recommendations that are in the Best Interest of 

the Retirement Investor. These policies and procedures must include procedures to mitigate, to the extent 

practical, the effects of these forms of compensation on an Adviser’s choice of Asset, to supervise the 

recommendations made by those Advisers, to promptly detect possible recommendations that may not be in 

the Best Interest of the Retirement Investor, and to take prompt and appropriate action concerning any 

recommendation that is found to have not been in the Best Interest of the Retirement Investor.

(3) 

(4)

See FINRA Letter, at 9.

9 See supra note 3.

10 See Wells Fargo July 21 Letter, at App. A, at p. 24 (§ II.D.).

11 See id., at pp 24-27 (§ II.D.).

12 Alternatively:

(2) Inform the Retirement Investor that the Retirement Investor has the right to obtain complete information 

about all the fees currently associated with the Assets in which it is invested, including all of the direct and indirect 

fees paid payable to the Adviser, Financial Institution, and any Affiliates;

13 See infra note 20.
Wells Fargo & Co.

Appendix C

6

(ef) Prohibited Contractual Provisions. The agreement written contract14 shall not contain 

the following: 

(1) Exculpatory provisions disclaiming or otherwise limiting liability of the Adviser 

or Financial Institution for a violation of the agreementcontract’s15 terms; and 

(2) A provision under which the Plan, IRA or Retirement Investor waives or 

qualifies its right to bring or participate in a class action or other representative action in 

court in a dispute with the Adviser or Financial Institution, or agrees to an amount 

representing liquidated damages for breach of the agreement; provided that the parties may 

agree to limit damages to an amount equal to the return an investor would have earned 

from an investment that was in the Best Interest of the Retirement Investor at the time of 

the recommendation and the return that the Retirement Investor actually earned, and to 

preclude the right to rescind any transaction the rescission of which is not otherwise 

contemplated by federal law.

16

(g) Monitoring. The agreement describes whether or not the Adviser and Financial 

Institution will monitor the Retirement Investor’s investments and alert the Retirement Investor 

to any recommended change to those investments, and if so, the frequency with which the 

monitoring will occur and the reasons for which the customer will be alerted.17

Section III – Disclosure Requirements 

(a)Transaction Disclosure. 

(1) Disclosure. Prior to the execution of the purchase of the Asset by the Plan, 

participant or beneficiary account, or IRA, the Adviser furnishes to the Retirement Investor 

a chart that provides, with respect to each Asset recommended, the Total Cost to the Plan, 

participant or beneficiary account, or IRA, of investing in the Asset for 1-, 5- and 10-year 

periods expressed as a dollar amount, assuming an investment of the dollar amount 

recommended by the Adviser and reasonable assumptions about investment performance 

that are disclosed. 

The disclosure chart required by this section need not be provided with respect to a 

subsequent recommendation to purchase the same investment product if the chart was 

previously provided to the Retirement Investor within the past twelve months and the Total 

Cost has not materially changed. 

(2) Total Cost. The “Total Cost” of investing in an Asset means the sum of the 

following, as applicable: 

(A) Acquisition costs. Any costs of acquiring the Asset that are paid by direct 

charge to the Plan, participant or beneficiary account, or IRA, or that reduce the 

amount invested in the Asset (e.g., any loads, commissions, or mark-ups on Assets 

bought from dealers, and account opening fees, if applicable). 

 14 See supra note 3.

15 See id.

16 See FINRA Letter, at 21.

17 See id., at 8.
Wells Fargo & Co.

Appendix C

7

(B) Ongoing costs. Any ongoing (e.g., annual) costs attributable to fees and 

expenses charged for the operation of an Asset that is a pooled investment fund (e.g., 

mutual fund, bank collective investment fund, insurance company pooled separate 

account) that reduces the Asset’s rate of return (e.g., amounts attributable to a mutual 

fund expense ratio and account fees). This includes amounts paid by the pooled 

investment fund to intermediaries, such as sub-TA fees, subaccounting fees, etc. 

(C) Disposition costs. Any costs of disposing of or redeeming an interest in 

the Asset that are paid by direct charge to the Plan, participant or beneficiary 

account, or IRA, or that reduce the amounts received by the Plan, participant or 

beneficiary account, or IRA (e.g., surrender fees, back-end loads, etc., that are 

always applicable (i.e., do not sunset), mark-downs on assets sold to dealers, and 

account closing fees, if applicable). 

(D) Others. Any costs not described in (A)-(C) that reduce the Asset’s rate of 

return, are paid by direct charge to the Plan, participant or beneficiary account, or 

IRA, or reduce the amounts received by the Plan, participant or beneficiary account, 

or IRA (e.g., contingent fees, such as back-end loads that phase out over time (with 

such terms explained beneath the table)). 

(3) Model Chart. Appendix II to this exemption contains a model chart that may be 

used to provide the information required under this Section III(a). Use of the model chart 

is not mandatory. However, use of an appropriately completed model chart will be deemed 

to satisfy the requirements of this Section III(a).18

(b) Annual Disclosure. The Adviser or Financial Institution provides the following written 

information to the Retirement Investor, annually, within 45 days of the end of the applicable 

year, in a succinct single disclosure: 

(1) A list identifying each Asset purchased or sold during the applicable period and 

the price at which the Asset was purchased or sold; 

(2) A statement of the total dollar amount of all fees and expenses paid by the Plan, 

participant or beneficiary account, or IRA (directly and indirectly) with respect to each 

Asset purchased, held or sold during the applicable period; and 

 18 See Wells Fargo July 21 Letter, at App. A, p. 25 (§ II.D.i.). Alternatively:

(a) Transaction Disclosure. 

(1) Disclosure. At or pPrior to the execution of the purchase of the Asset by the Plan, participant or 

beneficiary account, or IRA, the Adviser furnishes to the Retirement Investor a chart that provides, with 

respect to each Asset recommended, a mutual fund summary prospectus (if applicable) or makes available 

via webpage a disclosure that meets the requirements of ERISA Section 408(b)(2)the Total Cost to the Plan, 

participant or beneficiary account, or IRA, of investing in the Asset for 1-, 5- and 10-year periods expressed 

as a dollar amount, assuming an investment of the dollar amount recommended by the Adviser and 

reasonable assumptions about investment performance that are disclosed.

The disclosure chart required by this section need not be provided with respect to a subsequent 

recommendation to purchase the same investment product if the chart was previously provided to the 

Retirement Investor within the past twelve months and the Total Cost has not materially changed. 

(2) 

(3)
Wells Fargo & Co.

Appendix C

8

(3) A statement of the total dollar amount of all compensation received by the 

Adviser and Financial Institution, directly or indirectly, from any party, as a result of each 

Asset sold, purchased or held by the Plan, participant or beneficiary account, or IRA 

during the applicable period.19

(c) Webpage. 

(1) The Financial Institution maintains a webpage, freely accessible to the public, 

which shows the following information: 

(A) The direct and indirect material compensation payable to the Adviser, 

Financial Institution and any Affiliate for services provided in connection with each 

Asset (or, if uniform across a class of Assets, the class of Assets) that a Plan, 

participant or beneficiary account, or an IRA is able to purchase, hold, or sell 

through the Adviser or Financial Institution, and that a Plan, participant or 

beneficiary account, or an IRA has purchased, held, or sold within the last 365 days. 

The compensation may be expressed as a monetary amount, formula or percentage of 

the assets involved in the purchase, sale or holding; and 

(B) The source of the compensation, and how the compensation varies within 

and among Assets. 

(2) The Financial Institution’s webpage provides access to the information in (1)(A) 

and (B) in a machine readable format.20

 19 See Wells Fargo July 21 Letter, at App. A, p. 25 (§ II.D.ii.). Alternatively:

(b) Annual Disclosure. The Adviser or Financial Institution provides the following written information to the 

Retirement Investor, annually, within 9045 days of the end of the applicable year, in a succinct single disclosure: 

(1) A list identifying each Asset purchased or sold during the applicable period and the price at which 

the Asset was purchased or sold; 

(2) A statement of the total dollar amount of all fees and expenses paid by the Plan, participant or 

beneficiary account, or IRA (directly and indirectly) with respect to each Asset purchased, held or sold 

during the applicable period; and 

(3) A statement of the total dollar amount of all compensation received by the Adviser and Financial 

Institution, directly or indirectly, from any party, as a result of each Asset sold, purchased or held by the 

Plan, participant or beneficiary account, or IRA during the applicable period. 

20 See id., at p. 26 (§ II.D.iii.). Alternatively:

(c) Webpage. 

(1) The Financial Institution maintains a webpage, freely accessible to the public, which shows the 

following information: 

(1A) Shows a disclosure that meets the requirements of ERISA Section 408(b)(2)The direct 

and indirect material compensation payable to the Adviser, Financial Institution and any Affiliate for 

services provided in connection with each Asset (or, if uniform across a class of Assets, the class of 

Assets) that a Plan, participant or beneficiary account, or an IRA is able to purchase, hold, or sell 

through the Adviser or Financial Institution, and that a Plan, participant or beneficiary account, or an 

IRA has purchased, held, or sold within the last 365 days. The compensation may be expressed as a 

monetary amount, formula or percentage of the assets involved in the purchase, sale or holding; and 

(2B) Is updated on a quarterly basisThe source of the compensation, and how the 

compensation varies within and among Assets. 
Wells Fargo & Co.

Appendix C

9

Section IV – Range of Investment Options 

(a) General. The Financial Institution offers for purchase, sale or holding, and the Adviser 

makes available to the Plan, participant or beneficiary account, or IRA for purchase, sale or 

holding, a range of Assets that is broad enough to enable the Adviser to make recommendations 

with respect to all of the asset classes reasonably necessary to serve the Best Interests of the 

Retirement Investor in light of its investment objectives, risk tolerance, and specific financial 

circumstances. 

(b) Limited Range of Investment Options. Section (a) notwithstanding, a Financial 

Institution may limit the Assets available for purchase, sale or holding based on whether the 

Assets are Proprietary Products, generate Third Party Payments, or for other reasons, and still 

rely on the exemption, provided that: 

(1) The Financial Institution makes a specific written finding that the limitations it 

has placed on the Assets made available to an Adviser for purchase, sale or holding by 

Plans, participant and beneficiary accounts, and IRAs do not prevent the Adviser from 

providing advice that is in the Best Interest of the Retirement Investor (i.e., advice that 

reflects the care, skill, prudence, and diligence under the circumstances then prevailing that 

a prudent person would exercise based on the investment objectives, risk tolerance, 

financial circumstances, and needs of the Retirement Investor, without regard to the 

financial or other interests of the Adviser, Financial Institution or any Affiliate, Related 

Entity, or other party) or otherwise adhering to the Impartial Conduct Standards; 

(2) Any compensation received in connection with a purchase, sale or holding of the 

Asset by a Plan, participant or beneficiary account, or an IRA, is reasonable in relation to 

the value of the specific services provided to the Retirement Investor in exchange for the 

payments and not in excess of the services’ fair market value; 

(3) Before giving investment recommendations to Retirement Investors, the Adviser 

or Financial Institution gives the Retirement Investor clear written notice of the limitations 

placed on the Assets that the Adviser may offer for purchase, sale or holding by a Plan, 

participant or beneficiary account, or an IRA. Notice is insufficient if it merely states that 

the Financial Institution or Adviser “may” limit investment recommendations based on 

whether the Assets are Proprietary Products or generate Third Party Payments, or for other 

reasons, without specific disclosure of the extent to which recommendations are, in fact, 

limited on that basis; and 

(4) The Adviser notifies the Retirement Investor if the Adviser does not recommend 

a sufficiently broad range of Assets to meet the Retirement Investor’s needs. 

(c) ERISA plan participants and beneficiaries. Some Advisers and Financial Institutions 

provide advice to participants in ERISA-covered participant directed individual account Plans in 

which the menu of investment options is selected by an Independent Plan fiduciary. In such 

cases, provided the Adviser and Financial Institution did not provide investment advice to the 

Plan fiduciary regarding the composition of the menu, the Adviser and Financial Institution do 

not have to comply with Section IV(a)-(c) in connection with their advice to individual 

participants and beneficiaries on the selection of Assets from the menu provided. This exception 

 

(2)
Wells Fargo & Co.

Appendix C

10

is not available for advice with respect to investments within open brokerage windows or 

otherwise outside the Plan’s designated investment options. 21

Section IIIV – Disclosure to the Department and Recordkeeping

(a) EBSA Disclosure. Before receiving compensation in reliance on the exemption in 

Section I, the Financial Institution notifies the Department of Labor of the intention to rely on 

this class exemption. The notice will remain in effect until revoked in writing by the Financial 

Institution. The notice need not identify any Plan or IRA. 

(b) Data Request. The Financial Institution maintains the data that is subject to request 

pursuant to Section IX in a manner that is accessible for examination by the Department for six 

(6) years from the date of the transaction subject to relief hereunder. No party, other than the 

Financial Institution responsible for complying with this paragraph (b), will be subject to the 

taxes imposed by Code section 4975(a) and (b), if applicable, if the data is not maintained or not 

available for examination as required by paragraph (b).22

(bc) Recordkeeping. The Financial Institution maintains for a period of six (6) years, in a 

manner that is accessible for examination, the records necessary to enable the persons described 

in paragraph (cd) of this Section to determine whether the conditions of this exemption have 

been met, except that: 

(1) If such records are lost or destroyed, due to circumstances beyond the control of 

the Financial Institution, then no prohibited transaction will be considered to have occurred 

solely on the basis of the unavailability of those records; and 

(2) No party, other than the Financial Institution responsible for complying with this 

paragraph (c), will be subject to the civil penalty that may be assessed under ERISA 

section 502(i) or the taxes imposed by Code section 4975(a) and (b), if applicable, if the 

records are not maintained or are not available for examination as required by paragraph 

(cd), below. 

 21 Wells Fargo July 21 Letter, at App. A, p. 28 (§ II.F). Alternatively:

Section IV – Range of Investment Options 

(a) 

(b) 

(1) 

(2)

(3) Before giving investment recommendations to Retirement Investors, the Adviser or Financial 

Institution gives the Retirement Investor clear written notice of the limitations placed on the Assets that the 

Adviser may offer for purchase, sale or holding by a Plan, participant or beneficiary account, or an IRA. 

Notice is insufficient if it merely states that the Financial Institution or Adviser “may” limit investment 

recommendations based on whether the Assets are Proprietary Products or generate Third Party Payments, or 

for other reasons, without specific disclosure of the extent to which recommendations are, in fact, limited on 

that basis; and

(4)

(c) 

22 See infra note 30.
Wells Fargo & Co.

Appendix C

11

(cd) 

(1) Except as provided in paragraph (cd)(2) of this Section, and notwithstanding any 

provisions of ERISA section 504(a)(2) and (b), the records referred to in paragraph (bc) of 

this Section are unconditionally available at their customary location for examination 

during normal business hours by: 

(A) Any authorized employee or representative of the Department or the 

Internal Revenue Service; 

(B) Any fiduciary of a Plan that engaged in a purchase, sale or holding of an 

Asset described in this exemption, or any authorized employee or representative of 

such fiduciary; 

(C) Any contributing employer and any employee organization whose 

members are covered by a Plan described in paragraph (d)(1)(B), or any authorized 

employee or representative of these entities; or 

(D) Any participant or beneficiary of a Plan described in paragraph (B), IRA 

owner, or the authorized representative of such participant, beneficiary or owner; and 

(2) None of the persons described in paragraph (cd)(1)(B)-(D) of this Section are 

authorized to examine privileged trade secrets or privileged commercial or financial 

information, of the Financial Institution, or information identifying other individuals. 

(3) Should the Financial Institution refuse to disclose information on the basis that 

the information is exempt from disclosure, the Financial Institution must, by the close of 

the thirtieth (30th) day following the request, provide a written notice advising the 

requestor of the reasons for the refusal and that the Department may request such 

information.

Section IVVI – Insurance and Annuity Contract Exemption 

(a) In general. In addition to prohibiting fiduciaries from receiving compensation from 

third parties and compensation that varies on the basis of the fiduciaries’ investment advice, 

ERISA and the Internal Revenue Code prohibit the purchase by a Plan, participant or beneficiary 

account, or IRA of an insurance or annuity product from an insurance company that is a service 

provider to the Plan or IRA. This exemption permits a Plan, participant or beneficiary account, 

or IRA to purchase an Asset that is an insurance or annuity contract in accordance with an 

Adviser’s advice, from a Financial Institution that is an insurance company and that is a service 

provider to the Plan or IRA. This exemption is provided because purchases of insurance and 

annuity products are often prohibited purchases and sales involving insurance companies that 

have a pre-existing party in interest relationship to the Plan or IRA. 

(b) Covered transaction. The restrictions of ERISA section 406(a)(1)(A) and (D), and the 

sanctions imposed by Code section 4975(a) and (b), by reason of Code section 4975(c)(1)(A) 

and (D), shall not apply to a fiduciary’s causing the purchase of an Asset that is an insurance or 

annuity contract by a non-participant-directed Plan subject to Title I of ERISA that has fewer 

than 100 participants, participant or beneficiary account, or IRA, from a Financial Institution that 

is an insurance company and that is a party in interest or disqualified person, if: 

(1) The transaction is effected by the insurance company in the ordinary course of its 

business as an insurance company; 
Wells Fargo & Co.

Appendix C

12

(2) The combined total of all fees and compensation received by the insurance 

company and any Affiliate is not in excess of Rreasonable Ccompensation under the 

circumstances; 

(3) The purchase is for cash only; and 

(4) The terms of the purchase are at least as favorable to the Plan, participant or 

beneficiary account, or IRA as the terms generally available in an arm’s length transaction 

with an unrelated party. 

(c) Exclusion: The exemption in this Section VI does not apply if the Plan is covered by 

Title I of ERISA, and (i) the Adviser, Financial Institution or any Affiliate is the employer of 

employees covered by the Plan, or (ii) the Adviser and Financial Institution is a named fiduciary 

or plan administrator (as defined in ERISA section 3(16)(A)) with respect to the Plan, or an 

affiliate thereof, that was selected to provide advice to the plan by a fiduciary who is not 

Independent. 

Section VVII – Exemption for Pre-Existing Transactions 

(a) In general. ERISA and the Internal Revenue Code prohibit Advisers, Financial 

Institutions and their Affiliates and Related Entities from receiving variable or third-party 

compensation as a result of the Adviser’s and Financial Institution’s advice to a Plan, participant 

or beneficiary, or IRA owner. Some Advisers and Financial Institutions did not consider 

themselves fiduciaries within the meaning of 29 CFR section 2510-3.21 before the applicability 

date of the amendment to 29 CFR section 2510-3.21 (the Applicability Date). Other Advisers 

and Financial Institutions entered into transactions involving Plans, participant or beneficiary 

accounts, or IRAs before the Applicability Date, in accordance with the terms of a prohibited 

transaction exemption that has since been amended. This exemption permits Advisers, Financial 

Institutions, and their Affiliates and Related Entities, to receive compensation, such as 12b-1 

fees, in connection with the purchase, sale or holding of an Asset by a Plan, participant or 

beneficiary account, or an IRA, as a result of the Adviser’s and Financial Institution’s advice, 

that occurred prior to the Applicability Date, as described and limited below. 

(b) Covered transaction. Subject to the applicable conditions described below, the 

restrictions of ERISA section 406(a)(1)(D) and 406(b) and the sanctions imposed by Code 

section 4975(a) and (b), by reason of Code section 4975(c)(1)(D), (E) and (F), shall not apply to 

the receipt of compensation by an Adviser, Financial Institution, and any Affiliate and Related 

Entity, for services provided in connection with the purchase, holding or sale of an Asset, as a 

result of the Adviser’s and Financial Institution’s advice, that was purchased, sold, or held by a 

Plan, participant or beneficiary account, or an IRA opened before the Applicability Date if:

(1) The compensation is not excluded pursuant to Section I(c) of the Best Interest 

Contract Exemption; 

(2) The compensation is received pursuant to an agreement, arrangement or 

understanding that was entered into prior to the Applicability Date; 

(3) The Adviser and Financial Institution do not provide additional advice to the Plan 

regarding the purchase, sale or holding of the Asset after the Applicability Date; and 
Wells Fargo & Co.

Appendix C

13

(4) The purchase or sale of the Asset was not a non-exempt prohibited transaction 

pursuant to ERISA section 406 and Code section 4975 on the date it occurred.

23

Section VIVIII – Definitions 

For purposes of these exemptions: 

(a) “Adviser” means an individual who: 

(1) Is a fiduciary of a Plan or IRA solely by reason of the provision of investment 

advice described in ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B), or both, 

and the applicable regulations, with respect to the Assets involved in the transaction; 

(2) Is an employee, independent contractor, agent, or registered representative of a 

Financial Institution; and 

(3) Satisfies the applicable federal and state regulatory and licensing requirements of 

insurance, banking, and securities laws with respect to the covered transaction. 

(b) “Affiliate” of an Adviser or Financial Institution means –

(1) Any person directly or indirectly through one or more intermediaries, controlling, 

controlled by, or under common control with the Adviser or Financial Institution. For this 

purpose, “control’’ means the power to exercise a controlling influence over the 

management or policies of a person other than an individual; 

(2) Any officer, director, employee, agent, registered representative, relative (as 

defined in ERISA section 3(15)), member of family (as defined in Code section 

4975(e)(6)) of, or partner in, the Adviser or Financial Institution; and 

(3) Any corporation or partnership of which the Adviser or Financial Institution is an 

officer, director or employee or in which the Adviser or Financial Institution is a partner. 

(c) An “Asset,” for purposes of this exemption, means securities or other property includes 

only the following investment products: bank deposits, certificates of deposit (CDs), shares or 

interests in registered investment companies, bank collective funds, insurance company separate 

accounts, exchange-traded REITs, exchange-traded funds, corporate bonds offered pursuant to a 

 23 See Wells Fargo July 21 Letter, at App. A, p. 28 (§ II.G). Alternatively:

Section VII – Exemption for Pre-Existing Transactions 

(a) [stet]

(b) Covered transaction. Subject to the applicable conditions described below, the restrictions of ERISA 

section 406(a)(1)(D) and 406(b) and the sanctions imposed by Code section 4975(a) and (b), by reason of Code 

section 4975(c)(1)(D), (E) and (F), shall not apply to the receipt of compensation by an Adviser, Financial 

Institution, and any Affiliate and Related Entity, for services provided in connection with the purchase, holding or 

sale of securities or other property an Asset, as a result of the Adviser’s and Financial Institution’s advice, that was 

purchased, sold, or held by a Plan, participant or beneficiary account, or an IRA before the Applicability Date if: 

(1) [stet]

(2) [stet]

(3)

(34) The purchase or sale of the securities or other property an Asset was not a non-exempt prohibited 

transaction pursuant to ERISA section 406 and Code section 4975 on the date it occurred.
Wells Fargo & Co.

Appendix C

14

registration statement under the Securities Act of 1933, agency debt securities as defined in 

FINRA Rule 6710(l) or its successor, U.S. Treasury securities as defined in FINRA Rule 6710(p) 

or its successor, insurance and annuity contracts, guaranteed investment contracts, and equity 

securities within the meaning of 17 CFR section 230.405 that are exchange-traded securities 

within the meaning of 17 CFR 242.600. Excluded from this definition is any equity security that 

is a security future or a put, call, straddle, or other option or privilege of buying an equity 

security from or selling an equity security to another without being bound to do so.

24

(d) Investment advice is in the “Best Interest” of the Retirement Investor when the Adviser 

and Financial Institution providing the advice consider the Retirement Investor’s investment 

profile as well as product- or strategy-related factors in addition to cost, such as the product’s or 

strategy’s investment objectives, characteristics (including any special or unusual features), 

liquidity, risks and potential benefits, volatility and likely performance in a variety of market and 

economic conditions act with the care, skill, prudence, and diligence under the circumstances 

then prevailing that a prudent person would exercise based on the investment objectives, risk 

tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the 

financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, 

or other party.

25

(e) “Financial Institution” means the entity that employs the Adviser or otherwise retains 

such individual as an independent contractor, agent or registered representative and that is: 

(1) Registered as an investment adviser under the Investment Advisers Act of 1940 

(15 USC 80b-1 et seq.) or under the laws of the state in which the adviser maintains its 

principal office and place of business; 

 24 See Wells Fargo July 21 Letter, at App. A, pp 22-23 (§ II.C.i. and ii.). Alternatively, as discussed in our July 21st

and September 24th comment letters, the permitted list of investments should be expanded to include other

investments that investors make in IRAs, including, for example, limited partnerships, hedge funds, private equity 

funds, covered calls and over-the-counter equity securities, and should be updated frequently to include future 

product innovations. In addition, we have recommended, in the event the Department chooses to retain any narrow 

definition of “Asset,” the definition not apply to retirement investors who can be designated as an “Accredited

Investor.” Id. at pp 23-24 (§ II.C.iv.). In Appendix B to this letter, we recommended that “Accredited Investor” be 

defined as “any person who comes within the categories defined under Rule 501(a) of Regulation D of the Securities 

Act of 1933 or any applicable state law.” See App. B, at p. 14 (§ 2510.3-21 (f)(9)).

25 See id., at pp 21-22 (§ II.B.iii.); IRI at 40-41; Correspondence from Lisa J. Bleier, Managing Director, Federal 

Government Relations and Associate General Counsel, Securities Industry and Financial Markets Association, to 

Office of Exemption Determinations, Employee Benefits Security Admin., Dep’t of Labor, regarding ZRIN: 1210-

ZA25; PTE Application D-11712 (July 20, 2015) (“SIFMA BICE Letter”), at 18, available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00506.pdf. Alternatively:

(d) Investment advice is in the “Best Interest” of the Retirement Investor when the Adviser and Financial 

Institution (i) provides advice with the care, skill, prudence, and diligence under the circumstances then prevailing 

that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an 

enterprise of a like character and with like aims and (ii) solely in the interest of the Retirement Investor, in each case 

as such standards are interpreted under Section 404 of ERISAproviding the advice act with the care, skill, prudence, 

and diligence under the circumstances then prevailing that a prudent person would exercise based on the investment 

objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor , without regard to the 

financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party.

See TIAA-CREF Letter, at 35; see also supra note 6.
Wells Fargo & Co.

Appendix C

15

(2) A bank or similar financial institution supervised by the United States or state, or 

a savings association (as defined in section 3(b)(1) of the Federal Deposit Insurance Act 

(12 USC 1813(b)(1)), but only if the advice resulting in the compensation is provided 

through a trust department of the bank or similar financial institution or savings association 

which is subject to periodic examination and review by federal or state banking authorities; 

(3) An insurance company qualified to do business under the laws of a state, 

provided that such insurance company: 

(A) Has obtained a Certificate of Authority from the insurance commissioner 

of its domiciliary state which has neither been revoked nor suspended, 

(B) Has undergone and shall continue to undergo an examination by an 

Independent certified public accountant for its last completed taxable year or has 

undergone a financial examination (within the meaning of the law of its domiciliary 

state) by the state’s insurance commissioner within the preceding 5 years, and 

(C) Is domiciled in a state whose law requires that actuarial review of reserves 

be conducted annually by an Independent firm of actuaries and reported to the 

appropriate regulatory authority; or

(4) A broker or dealer registered under the Securities Exchange Act of 1934 (15 USC 

78a et seq.). 

(f) “Independent” means a person that: 

(1) Is not the Adviser, the Financial Institution or any Affiliate relying on the 

exemption, 

(2) Does not receive compensation or other consideration for his or her own account 

from the Adviser, the Financial Institution or Affiliate; and 

(3) Does not have a relationship to or an interest in the Adviser, the Financial 

Institution or Affiliate that might affect the exercise of the person’s best judgment in 

connection with transactions described in this exemption. 

(g) “Individual Retirement Account” or “IRA” means any trust, account or annuity 

described in Code section 4975(e)(1)(B) through (CF), including, for example, an individual 

retirement account described in section 408(a) of the Code and a health savings account 

described in section 223(d) of the Code.

26

(h) A “Material Conflict of Interest” exists when an Adviser or Financial Institution has a 

financial interest that, from the perspective of a reasonable person,27 could affect the exercise of 

its best judgment as a fiduciary in rendering advice to a Retirement Investor regarding an Asset. 

(i) “Plan” means any employee benefit plan described in section 3(3) of the Act and any 

plan described in section 4975(e)(1)(A) of the Code. 

(j) “Proprietary Product” means a product that is managed by the Financial Institution or 

any of its Affiliates. 

 26 See Wells Fargo July 21 Letter, at App. A, pp 12-14 (§§ I.F.i. and ii.). This change to the definition of “Individual 

Retirement Account” or “IRA” was also made in Appendices B and D to this letter.

27 See SIFMA BICE Letter, at 19.
Wells Fargo & Co.

Appendix C

16

(k) “Reasonable Compensation” means compensation that is normally charged for similar 

transactions. 28

(lk) “Related Entity” means any entity other than an Affiliate in which the Adviser or 

Financial Institution has an interest which may affect the exercise of its best judgment as a 

fiduciary. 

(ml) “Retirement Investor” means –

(1) A participant or beneficiary of a Plan subject to Title I of ERISA with authority 

to direct the investment of assets in his or her Plan account or to take a distribution, 

(2) The beneficial owner of an IRA acting on behalf of the IRA, or 

(3) A plan sponsor as described in ERISA section 3(16)(B) (or any employee, officer 

or director thereof), of a non-participant-directed Plan subject to Title I of ERISA that has 

fewer than 100 participants29, to the extent it acts as a fiduciary with authority to make 

investment decisions for the Plan. 

(nm) “Third-Party Payments” mean sales charges when not paid directly by the Plan, 

participant or beneficiary account, or IRA, 12b-1 fees and other payments paid to the Financial 

110 Institution or an Affiliate or Related Entity by a third party as a result of the purchase, sale or 

holding of an Asset by a Plan, participant or beneficiary account, or IRA. 

Section IX – Data Request 

Upon request by the Department, a Financial Institution that relies on the exemption in 

Section I shall provide, within a reasonable time, but in no event longer than six (6) months, after 

receipt of the request, the following information for the preceding six (6) year period: 

(a) Inflows. At the Financial Institution level, for each Asset purchased, for each quarter: 

(1) The aggregate number and identity of shares/units bought; 

(2) The aggregate dollar amount invested and the cost to the Plan, participant or 

beneficiary account, or IRA associated with the purchase; 

(3) The revenue received by the Financial Institution and any Affiliate in connection 

with the purchase of each Asset disaggregated by source; and 

(4) The identity of each revenue source (e.g., mutual fund, mutual fund adviser) and 

the reason the compensation was paid.

(b) Outflows. At the Financial Institution level for each Asset sold, for each quarter: 

 28 See Wells Fargo July 21 Letter, at App. A, pp 18-19 (§ I.B.i.); see also Dep’t of Labor, Advisory Opinion No. 

2002-08A, letter from Louis Campagna, Chief, Division of Fiduciary Interpretations, Office of Regulations and 

Interpretations to Michael A. Crabtree, Esq., Central Pension Fund of the International Union of Operating 

Engineers and Participating Employers (Aug. 20, 2002) (“With regard to the selection of service providers under 

ERISA...the responsible plan fiduciary must engage in an objective process designed to elicit information necessary 

to assess the qualifications of the provider, the quality of services offered, and the reasonableness of the fees charged 

in light of the services provided.”), available at: http://www.dol.gov/ebsa/regs/AOs/ao2002-08a.html; FINRA, Rule 

2121, Fair Prices and Commissions, available at: http://finra.complinet.com/en/display/

display_main.html?rbid=2403&element_id=11539; FINRA, Rule 2122, Charges for Services Performed, available 

at: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=11764.

29 See supra note 1.
Wells Fargo & Co.

Appendix C

17

(1) The aggregate number of and identity of shares/units sold; 

(2) The aggregate dollar amount received and the cost to the Plan, participant or 

beneficiary account, or IRA, associated with the sale; 

(3) The revenue received by the Financial Institution and any Affiliate in connection 

with the sale of each Asset disaggregated by source; and 

(4) The identity of each revenue source (e.g., mutual fund, mutual fund adviser) and 

the reason the compensation was paid. 

(c) Holdings. At the Financial Institution level for each Asset held at any time during each 

quarter: 

(1) The aggregate number and identity of shares/units held at the end of such quarter; 

(2) The aggregate cost incurred by the Plan, participant or beneficiary account, or 

IRA, during such quarter in connection with the holdings; 

(3) The revenue received by the Financial Institution and any Affiliate in connection 

with the holding of each Asset during such quarter for each Asset disaggregated by source; 

and 

(4) The identity of each revenue source (e.g., mutual fund, mutual fund adviser) and 

the reason the compensation was paid. 

(d) Returns. At the Retirement Investor level: 

(1) The identity of the Adviser; 

(2) The beginning-of-quarter value of the Retirement Investor’s Portfolio; 

(3) The end-of-quarter value of the Retirement Investor’s Portfolio; and 

(4) Each external cash flow to or from the Retirement Investor’s Portfolio during the 

quarter and the date on which it occurred. 

For purposes of this subparagraph (d), “Portfolio” means the Retirement Investor’s 

combined holding of assets held in a Plan account or IRA advised by the Adviser.

(e) Public Disclosure. The Department reserves the right to publicly disclose information 

provided by the Financial Institution pursuant to subparagraph (d). If publicly disclosed, such 

information would be aggregated at the Adviser level, and the Department would not disclose 

any individually identifiable financial information regarding Retirement Investor accounts. 30

 30 Wells Fargo July 21 Letter, at App. A, pp 27 (§ II.D.iv.).
Wells Fargo & Co.

Appendix C

18

Appendix I Financial Institution ABC - Website Disclosure Model Form 

Type of 

Investment

Provider, 

Name, 

sub-type

Transactional Ongoing Affiliate Special 

Rules

Charges To 

investor

Compensation 

To firm

Compensation 

To adviser

Charges 

To 

investor

Compensation 

To firm

Compensation 

To adviser

NonProprietary 

Mutual Fund 

(Load Fund)

XYZ MF 

Large 

Cap 

Fund, 

Class A 

Class B 

Class C

[ • ]% sales 

load as 

applicable

[ • ]% dealer 

concession

[ • ]% of 

transactional 

fee Extent 

considered in 

annual bonus

[ • ]% 

expense 

ratio

[ • ]% 12b-1 

fee, revenue 

sharing (paid 

by fund/ 

affiliate)

[ • ]% of 

ongoing fees 

Extent 

considered in 

annual bonus

N/A Breakpoints 

(as 

applicable) 

Contingent 

deferred 

shares 

charge (as 

applicable)

Proprietary 

Mutual Fund 

(No load)

ABC MF 

Large 

Cap 

Fund

No upfront 

charge

N/A N/A [ • ]% 

expense 

ratio

[ • ]% assetbased annual 

fee for 

shareholder 

servicing 

(paid by fund/ 

affiliate)

[ • ]% of 

ongoing fees 

Extent 

considered in 

annual bonus

[ • ]% 

assetbased 

investment 

advisory 

fee paid 

by fund to 

affiliate of 

Financial 

Institution

N/A

Equities, ETFs, 

Fixed Income

$[ • ] 

commission 

per 

transaction

$[ • ] 

commission 

per 

transaction

[ • ]% of 

commission 

Extent 

considered in 

annual bonus

N/A N/A N/A Extent 

considered in 

annual bonus

N/A N/A

Annuities 

(Fixed and 

Variable)

Insurance 

Company 

A

No upfront 

charge on 

amount 

invested

$[ • ] 

commission 

(paid by 

insurer)

[ • ]% of 

commission 

Extent 

considered in 

annual bonus

[ • ]% 

M&E fee 

[ • ]% 

underlying 

expense 

ratio

$[ • ] Ongoing 

trailing 

commission 

(paid by 

underlying 

investment 

providers)

[ • ]% of 

ongoing fees 

Extent 

considered in 

annual bonus

N/A Surrender 

charge 
Wells Fargo & Co.

Appendix C

19

Appendix II Financial Institution XZY - Transaction Disclosure Model Chart 

Your investment Total cost of your investment if held for:

1 year 5 years 10 years

Asset 1 

Asset 2 

Asset 3

 Fees

 Total
Wells Fargo & Co.

Appendix D

1

WELLS FARGO’S RECOMMENDED CHANGES TO PROPOSED 

CLASS EXEMPTION FOR PRINCIPAL TRANSACTIONS 

IN CERTAIN DEBT SECURITIES BETWEEN INVESTMENT 

ADVICE FIDUCIARIES AND EMPLOYEE BENEFIT PLANS AND IRAS

Section I – Exemption 

(a) In general. ERISA and the Internal Revenue Code prohibit fiduciary advisers to 

employee benefit plans (Plans) and individual retirement plans (IRAs) from self-dealing, 

including receiving compensation that varies based on their investment recommendations. 

ERISA and the Code also prohibit fiduciaries from engaging in securities purchases and sales 

with Plans or IRAs on behalf of their own accounts (Principal Transactions). This exemption 

permits certain persons who provide investment advice to Retirement Investors (i.e., fiduciaries 

of Plans, Plan participants or beneficiaries, or IRA owners) to engage in certain Principal 

Transactions as described below. 

(b) Exemption for Certain Principal Transactions. This exemption permits an Adviser or 

Financial Institution to engage in the purchase or sale of a Debt Security1 in a Principal 

Transaction with a Plan, participant or beneficiary account, or IRA, and receive a markup, markdown or other payment for themselves or any Affiliate, as a result of the Adviser’s and Financial 

Institution’s advice. As detailed below, parties seeking to rely on the exemption must 

contractually acknowledge fiduciary status, agree to adhere to Impartial Conduct Standards in 

rendering advice, disclose Material Conflicts of Interest associated with Principal Transactions 

and obtain the prospective written consent of the Plan or IRA; warrant that they have adopted 

policies and procedures designed to mitigate the dangers posed by Material Conflicts of Interest; 

disclose important information about the cost of the security in the Principal Transaction and 

retain certain records. This exemption provides relief from ERISA section 406(a)(1)(A) and (D) 

and section 406(b)(1) and (2), and the taxes imposed by Code section 4975(a) and (b), by reason 

of Code section 4975(c)(1)(A), (D), and (E). The Adviser and Financial Institution must comply 

with the conditions of Sections II-V. 

(c) Scope of this exemption: This exemption does not apply if: 

(1) The Adviser: 

(i) exercises any discretionary authority or discretionary control respecting 

management of the assets of the Plan or IRA involved in the transaction or exercises 

 

We have not endeavored to rewrite the entire Proposed Class Exemption for Principal Transactions in 

Certain Debt Securities Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs

(“Principal Transaction Exemption”). Instead, our changes are focused on sections where we understood the 

Department may be flexible and where we believe alterations in any final exemption are required. The 

revisions we offer herein also incorporate changes to the text of the Principal Transaction Exemption 

recommended by other commenters. Our citations to the comments of other parties are not an endorsement 

of their past or future comments beyond what we have specifically included.

1 See Correspondence from David M. Carroll, Senior Executive Vice President, Wealth, Brokerage & Retirement, 

Wells Fargo & Company, to John J. Canary, Director, Office of Regulations and Interpretations, Office of 

Exemption Determinations, Employee Benefits Security Admin., Dep’t of Labor, regarding Comments on Proposed 

Conflict of Interest Rule and Related Proposals [RIN: 1210-AB32 and ZRIN: 1210-ZA25] (July 21, 2015) (“Wells 

Fargo July 21 Letter”), at App. A, p. 30 (§ III.A.), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-

00647.pdf.
Wells Fargo & Co.

Appendix D

2

any discretionary authority or control respecting management or the disposition of 

the assets; or 

(ii) has any discretionary authority or discretionary responsibility in the 

administration of the Plan or IRA; or 

(2) The Plan is covered by Title I of ERISA and 

(i) the Adviser, Financial Institution or any Affiliate is the employer of 

employees covered by the Plan, or 

(ii) the Adviser or Financial Institution is a named fiduciary or plan 

administrator (as defined in ERISA section 3(16)(A)) with respect to the Plan, or an 

affiliate thereof, that was selected to provide investment advice to the plan by a 

fiduciary who is not Independent. 

(d) Good faith. Notwithstanding any other provision to the contrary, the failure to comply 

with any term, condition or requirement of this exemption will not result in the loss of the 

exemption if the failure to comply was insignificant and a good faith and reasonable attempt was 

made to comply with all applicable terms, conditions and requirements.2

Section II – Contract, Impartial Conduct, and Other Requirements 

(a) Contract. Prior to engaging in the Principal Transaction for which relief is sought 

under Section I, either the Adviser orand Financial Institution with primary responsibility for 

oversight of the Adviser, as appropriate, provide an enforceable agreement (under applicable 

law) to enter into a written contract with the Retirement Investor, acting on behalf of the Plan, 

participant or beneficiary account, or IRA, that incorporates the terms required by Section II(b)-

(de).

3

(b) Fiduciary. The agreement written contract 4affirmatively states that the Adviser and 

Financial Institution are fiduciaries under ERISA or the Code, or both, with respect to any 

investment recommendation to the Retirement Investor regarding Principal Transactions. 

(c) Impartial Conduct Standards. The Adviser and Financial Institution affirmatively

agree to, and comply with,5 the following: 

 2 See Wells Fargo July 21 Letter, at App. A, p. 33 (§ IV); Correspondence from Marcia E. Asquith, Senior Vice 

President and Corporate Secretary, Financial Industry Regulatory Authority, to Office of Regulations and 

Interpretations and Office of Exemption Determinations, Employee Benefits Security Admin., Dep’t of Labor, 

regarding Proposed Conflict of Interest Rule and Related Proposals, RIN 1210-AB32 (July 17, 2015) (“FINRA 

Letter”), at 20, available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00405.pdf.

3 See Wells Fargo July 21 Letter, at App. A, pp 15-18 (§ II.A.); FINRA, Regulatory Notice 12-55, Suitability (Dec. 

2012), at 2 (FAQ 6(a)), available at: https://www.finra.org/sites/default/files/NoticeDocument/p197435.pdf.

4 See supra note 3.

5 See Correspondence from Catherine J. Weatherford, President and Chief Executive Officer, Insured Retirement 

Institute, to Office of Regulations and Interpretations and Office of Exemption Determinations, Employee Benefits 

Security Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Investment Advice, RIN 1210-AB32; Proposed Amendment to and Proposed Partial Revocation of 

Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, 

Pension Consultants, Insurance Companies and Investment Company Principal Underwriters, ZRIN 1210-ZA25; 

Proposed Best Interest Contract Exemption, ZRIN 1210-ZA25 (July 21, 2015) (“IRI Letter”), at 43, available at:

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00626.pdf.
Wells Fargo & Co.

Appendix D

3

(1) When providing investment advice to a Retirement Investor regarding the 

Principal Transaction, the Adviser and Financial Institution will provide investment advice 

that is in the Best Interest of the Retirement Investor (i.e., advice that considers Retirement 

Investor’s investment profile as well as product- or strategy-related factors in addition to 

cost, such as the product’s or strategy’s investment objectives, characteristics (including 

any special or unusual features), liquidity, risks and potential benefits, volatility and likely 

performance in a variety of market and economic conditions reflects the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent person 

would exercise based on the investment objectives, risk tolerance, financial circumstances, 

and needs of the Retirement Investor, without regard to the financial or other interests of 

the Adviser, Financial Institution or any Affiliate or other party6); 

(2) The Adviser and Financial Institution will not enter into a Principal Transaction 

with the Plan, participant or beneficiary account, or IRA if the purchase or sales price of 

the Debt Security7 (including the mark-up or mark-down) is unreasonable under the 

circumstances; and 

(3) The Adviser’s and Financial Institution’s statements about the Debt Security,8

fees, Material Conflicts of Interest, the Principal Transaction, and any other matters 

relevant to a Retirement Investor’s investment decision in the Debt Security9, are not 

misleading. 

(d) Warranty. The Adviser and Financial Institution affirmatively warrant the following: 

 6 See Wells Fargo July 21 Letter, at App. A, pp 18-20 (§ II.B.i.); FINRA, Regulatory Notice 12-25, Suitability (May 

2012), at 3 (FAQ 1), available at: https://www.finra.org/sites/default/files/NoticeDocument/p126431.pdf; Dep’t of 

Labor, Employee Benefits Security Admin., Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee 

Disclosure, 72 Fed. Reg. 70988, at 70993 (proposed Dec. 13, 2007) (to be codified at 29 C.F.R. pt. 2550). 

Alternatively:

(1) When providing investment advice to the Retirement Investor regarding the Asset, the Adviser and 

Financial Institution will provide investment advice that is in the Best Interest of the Retirement Investor (i.e., (i) 

provide advice with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent 

person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like 

character and with like aims and (ii) solely in the interest of the Retirement Investor, in each case as such standards 

are interpreted under Section 404 of ERISA that reflects the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent person would exercise based on the investment objectives, risk 

tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the financial or other 

interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party); 

See Correspondence from Edward Van Dolsen, Executive Vice President, President of Retirement and Individual 

Financial Services, TIAA CREF Financial Services, to Office of Regulations and Interpretations, Employee Benefits 

Security Admin., Dep’t of Labor, regarding Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Advice; Proposed Rule (RIN 1210-AB32), Proposed Best Interest Contract Exemption (ZRIN: 1210-

ZA25), Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 84-24

(ZRIN: 1210-ZA25), Proposed Amendment to Prohibited Transaction Exemption 75-1 (ZRIN: 1210-ZA25), 

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 86-128 (ZRIN 

1210-ZA25) (July 20, 2015) (“TIAA-CREF Letter”), at 35, available at: http://www.dol.gov/ebsa/pdf/1210-AB32-

2-00540.pdf; see infra note 28.

7 See supra note 1.

8 See id.

9 See id.
Wells Fargo & Co.

Appendix D

4

(1) The Adviser, Financial Institution and Affiliates will comply with all applicable 

federal and state laws regarding the rendering of the investment advice and the purchase 

and sale of the Debt Security; 

(2) The Financial Institution has adopted written policies and procedures reasonably 

designed to mitigate the impact of Material Conflicts of Interest and to ensure that its 

individual Advisers adhere to the Impartial Conduct Standards set forth in Section II(c); 

(3) In formulating its policies and procedures, the Financial Institution has 

specifically identified Material Conflicts of Interest and adopted measures to prevent the 

Material Conflicts of Interest from causing violations of the Impartial Conduct Standards 

set forth in Section II(c); and 

(4) Neither the Financial Institution nor (to the best of its knowledge) any Affiliate 

uses quotas, appraisals, performance or personnel actions, bonuses, contests, special 

awards, differentiated compensation or other actions or incentives to the extent they would 

tend to encourage individual Advisers to make recommendations regarding Principal 

Transactions that are not in the Best Interest of the Retirement Investor. 10

(de) Principal Transaction Disclosures. The agreement written contract 11 must 

specifically: 

(1) Set forth in writing 

(i) the circumstances under which the Adviser and Financial Institution may 

engage in Principal Transactions with the Plan, participant or beneficiary account, or 

IRA and 

 10 See Wells Fargo July 21 Letter, at App. A, pp 27-28 (§ II.E.). Alternatively:

(d) Conditions Warranties. As a condition of this exemption, Tthe Adviser and Financial Institution affirmatively 

agree to warrant the following: 

(1) 

(12) The Financial Institution has adopted written policies and procedures reasonably designed to 

identify and mitigate the impact of Material Conflicts of Interest and ensure that its individual Advisers 

adhere to the Impartial Conduct Standards set forth in Section II(c); 

(3) 

(4)

(2) If the Financial Institution or (to the best of its knowledge) any Affiliate or Related Entity pays 

any form of compensation to Advisers that varies based on the Assets that they recommend, including 

payouts based upon commissions, trail commissions or 12b-1 fees, ticket charge discounts, awards, or 

product contests, and not solely on neutral factors such as the difference in time and analysis necessary to 

provide prudent advice, then the written policies and procedures described in paragraph (2) must be 

reasonably designed to ensure that such Advisers only make recommendations that are in the Best Interest of 

the Retirement Investor. These policies and procedures must include procedures to mitigate, to the extent 

practical, the effects of these forms of compensation on an Adviser’s choice of Asset, to supervise the 

recommendations made by those Advisers, to promptly detect possible recommendations that may not be in 

the Best Interest of the Retirement Investor, and to take prompt and appropriate action concerning any 

recommendation that is found to have not been in the Best Interest of the Retirement Investor.

See FINRA Letter, at 9.

11 See supra note 3.
Wells Fargo & Co.

Appendix D

5

(ii) identify and disclose the Material Conflicts of Interest associated with 

Principal Transactions, which for registered investment advisers, could be made via 

Form ADV;

12

(2) Document the Retirement Investor’s affirmative written consent, on a prospective 

basis, to Principal Transactions between the Adviser or Financial Institution and the Plan, 

participant or beneficiary account, or IRA; and 

(3) Inform the Retirement Investor 

(i) that the consent set forth in Section II(de)(2) is terminable at will by the 

Retirement Investor at any time, without penalty to the Plan or IRA, and 

(ii) of the right to obtain complete information about all the fees and other 

payments currently associated with its investments. 

(ef) Prohibited Contractual Provisions. The agreement written contract 13shall not contain 

the following: 

(1) Exculpatory provisions disclaiming or otherwise limiting liability of the Adviser 

or Financial Institution for a violation of the agreement contract’s14 terms; and 

(2) A provision under which the Plan, IRA or the Retirement Investor waives or 

qualifies its right to bring or participate in a class action or other representative action in 

court in a dispute with the Adviser or Financial Institution, or agrees to an amount 

representing liquidated damages for breach of the contract; provided that the parties may 

agree to limit damages to an amount equal to the return an investor would have earned 

from an investment that was in the Best Interests of the Retirement Investor at the time of 

the recommendation and the return that the Retirement Investor actually earned, and to 

preclude the right to rescind any transaction the rescission of which is not otherwise 

contemplated by federal law.

15

(g) Monitoring. The contract describes whether or not the Adviser and Financial 

Institution will monitor the Retirement Investor’s investments and alert the Retirement Investor 

to any recommended change to those investments, and if so, the frequency with which the 

monitoring will occur and the reasons for which the customer will be alerted.16

Section III – General Conditions

(a) An Adviser or Financial Institution shall be deemed in compliance with the provisions 

of this exemption when the Adviser or Financial Institution directly or indirectly, acting as 

principal for its own account, sells to or purchases from an Retirement Investor any Security if:

(1) The Adviser or Financial Institution exercises no “investment discretion” (as such 

term is defined in section 3(a)(35) of the Securities Exchange Act of 1934 (Exchange Act) 

 12 See Wells Fargo July 21 Letter, at App. A, p. 24 (§ II.D.).

13 See supra note 3.

14 See id.

15 See FINRA Letter, at 21.

16 See id., at 8.
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6

(15 U.S.C. 78c(a)(35))), except investment discretion granted by the Retirement Investor 

on a temporary or limited basis, with respect to the Retirement Investor’s account;

(2) Neither the Adviser, Financial Institution nor any person controlling, controlled 

by, or under common control with the Adviser or Financial Institution is the issuer of, or, 

at the time of the sale, an underwriter (as defined in section 202(a)(20) of the Investment 

Advisers Act of 1940 (Advisers Act) (15 U.S.C. 80b-2(a)(20))) of, the security; except that 

the Adviser or Financial Institution or a person controlling, controlled by, or under 

common control with the Adviser or Financial Institution may be an underwriter of an 

Investment Grade Debt Security;

(3) The Retirement Investor has executed the consent set forth in Section II(d)(2);

(4) The Adviser or Financial Institution, prior to the execution of each principal 

transaction informs the Retirement Investor as set forth in Section II(d)(3); and

(5) Each written disclosure required by this section includes a conspicuous, plain 

English statement that the Retirement Investor may revoke the written the consent set forth 

in Section II(d)(2) without penalty at any time by written notice to the investment adviser.

(b) This section shall not be construed as relieving in any way an Adviser or Financial 

Institution from acting in the Best Interests of a Retirement Investor, including fulfilling the duty 

with respect to the best price and execution, which for broker-dealers includes the requirements 

of FINRA Rule 5310 (Best Execution and Interposition) or any successor rule, as interpreted by 

FINRA, and Municipal Securities Rulemaking Board (MSRB) Rule G-18 (Best Execution) or 

any successor rule, as interpreted by MSRB,

17 for the particular transaction for the Retirement 

Investor; nor shall it relieve such person or persons from any obligation comply with: 

(1) any law making it unlawful to employ any device, scheme, or artifice to defraud 

any client or prospective Retirement Investor; 

(2) any law making it unlawful to engage in any transaction, practice, or course of 

business which operates as a fraud or deceit upon any client or prospective Retirement 

Investor; or

(3) any other applicable provisions of the federal securities laws.

(a) Debt Security. The Debt Security being purchased or sold: 

(1) Was not issued by the Financial Institution or any Affiliate; 

(2) Is not purchased by the Plan, participant or beneficiary account, or IRA in an 

underwriting or underwriting syndicate in which the Financial Institution or any Affiliate is 

the underwriter or a member; 

(3) Possesses no greater than a moderate credit risk; and 

(4) Is sufficiently liquid that the Debt Security could be sold at or near its fair market 

value within a reasonably short period of time. 

(b) Arrangement. The Principal Transaction is not part of an agreement, arrangement, or 

understanding designed to evade compliance with ERISA or the Code, or to otherwise impact the 

value of the Debt Security. 

 17 See id., at 16.
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7

(c) Cash. The purchase or sale of the Debt Security is for cash. 

(d) Pricing. The purchase or sale of the Debt Security is executed at a price that: 

(1) The Adviser and Financial Institution reasonably believe is at least as favorable 

to the Plan, participant or beneficiary account, or IRA than the price available to the Plan, 

participant or beneficiary account, or IRA in a transaction that is not a Principal 

Transaction; and 

(2) Is at least as favorable to the Plan, participant or beneficiary account, or IRA as 

the contemporaneous price for the Debt Security, or a similar security if a price is not 

available with respect to the same Debt Security, offered by two ready and willing 

counterparties that are not Affiliates. 

When comparing the price offered by the counterparties referred to in (2), the 

Adviser and Financial Institution may take into account a commission as part of the 

resulting price to the Plan, participant or beneficiary account, or IRA, as compared to the 

price of the Debt Security, including any mark-up or mark-down.18

Section IV – Disclosure Requirements 

(a) Pre-Transaction Disclosure. Prior to engaging in the Principal Transaction, the 

Adviser or Financial Institution provides the following, orally or in writing, to the Retirement 

Investor: 

(1) A statement that the purchase or sale of the Debt Security19 will be executed as a 

Principal Transaction between the Adviser or Financial Institution and the Plan, participant 

or beneficiary account, or IRA; and 

(2) Any available pricing information regarding the Debt Security20, including the 

two quotes obtained pursuant to Section III(d). The mark-up or mark-down or other 

payment that will be charged also must be disclosed.

21

(b) Confirmation. The Financial Institution provides a written confirmation of the 

Principal Transaction in accordance with Rule 10b-10 under the Securities Exchange Act of 

1934 that also includes disclosure of the mark-up, mark-down, or other payment to the Adviser, 

Financial Institution or Affiliate in connection with the Principal Transaction.

22

(c) Annual Disclosure. The Adviser or Financial Institution provides the following written 

information to the Retirement Investor, annually, within 9045 days of the end of the applicable 

year, in a single disclosure: 

 18 See Wells Fargo July 21 Letter, at App. A, p. 30 (§ III.B.); SEC, Rule 206(3)-3T, Investment Advisers Act of 

1940, Temporary Rule for Principal Trades with Certain Advisory Clients (codified at 17 C.F.R. pt. 275.206(3)-3T), 

at Parts (a) and (b).

19 See supra note 1.

20 See id.

21 See Wells Fargo July 21 Letter, at App. A, p. 31 (§ III.C.); 17 C.F.R. pt. 275.206(3)-3T(a)(4).

22 See Wells Fargo July 21 Letter, at App. A, p. 31 (§ III.C. and D.); 17 C.F.R. pt. 275.206(3)-3T(a)(5).
Wells Fargo & Co.

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8

(1) A list identifying each Principal Transaction engaged in during the applicable 

period, the prevailing market price at which the Debt Security was purchased or sold, and 

the applicable mark-up or mark-down or other payment for each Debt Security23; and 

(2) A statement that the consent required pursuant to Section II(e)(2) is terminable at 

will, without penalty to the Plan or IRA.

(d) Upon Request. Upon the Retirement Investor’s reasonable request, prior to or 

following the completion of a Principal Transaction, the Adviser or Financial Institution must 

provide the Retirement Investor with reasonably available24 additional information in its 

possession25 regarding the Debt Security26 and its purchase or sale; provided that such request 

may not relate to a Principal Transaction that was executed more than six (6) years from the date 

of the request.

(e) Markups and Markdowns. The Adviser and Financial Institution comply with markup 

policy of FINRA Rule 2121 or any successor rule and to any applicable FINRA rules concerning 

the disclosure of pricing information related to principal transactions, as interpreted by FINRA.27

Section V – Recordkeeping 

(a) The Financial Institution maintains for a period of six (6) years from the date of each 

Principal Transaction the records necessary to enable the persons described in Section V(b) to 

determine whether the conditions of this exemption have been met, except that: 

(1) If such records are lost or destroyed, due to circumstances beyond the control of 

the Financial Institution, then no prohibited transaction will be considered to have occurred 

solely on the basis of the unavailability of those records; and 

(2) No party other than the Financial Institution that is engaging in the Principal 

Transaction shall be subject to the civil penalty that may be assessed under ERISA section 

502(i) or to the taxes imposed by Code sections 4975(a) and (b) if the records are not 

maintained or are not available for examination as required by Section V(b). 

(b) 

(1) Except as provided in Section V(b)(2) and notwithstanding any provisions of 

ERISA sections 504(a)(2) and 504(b), the records referred to in Section V(a) are 

unconditionally available at their customary location for examination during normal 

business hours by: 

(i) any duly authorized employee or representative of the Department or the 

Internal Revenue Service; 

 23 See Wells Fargo July 21 Letter, at App. A, pp 31-32 (§ III.C. and D.); 17 C.F.R. pt. 275.206(3)-3T(a)(6).

24 See Correspondence from Lisa J. Bleier, Managing Director, Federal Government Relations and Associate 

General Counsel, Securities Industry and Financial Markets Association, to Office of Exemption Determinations, 

Employee Benefits Security Admin., Dep’t of Labor, regarding ZRIN: 1210-ZA25 (July 20, 2015) (“SIFMA 

Principal Transaction Letter”), at 37, available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00506.pdf.

25 See SIFMA Principal Transaction Letter, at 37.

26 See supra note 1.

27 See FINRA Letter, at 17.
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9

(ii) any fiduciary of the Plan or IRA that was a party to a Principal Transaction 

described in this exemption, or any duly authorized employee or representative of 

such fiduciary; 

(iii) any employer of participants and beneficiaries and any employee 

organization whose members are covered by the Plan, or any authorized employee or 

representative of these entities; and 

(iv) any participant or beneficiary of the Plan, or the beneficial owner of an 

IRA. 

(2) None of the persons described in subparagraph (1)(ii) through (iv) are authorized 

to examine trade secrets of the Financial Institution, or commercial or financial 

information which is privileged or confidential; and 

(3) Should the Financial Institution refuse to disclose information on the basis that 

such information is exempt from disclosure, the Financial Institution must by the close of 

the thirtieth (30th) day following the request, provide a written notice advising the 

requestor of the reasons for the refusal and that the Department may request such 

information. 

Section VI – Definitions 

(a) “Adviser” means an individual who: 

(1) Is a fiduciary of a Plan or IRA solely by reason of the provision of investment 

advice described in ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B), or both, 

and the applicable regulations, with respect to the Assets involved in the transaction; 

(2) Is an employee, independent contractor, agent, or registered representative of a 

Financial Institution; and 

(3) Satisfies the applicable banking, and securities laws with respect to the covered 

transaction. 

(b) “Affiliate” of an Adviser or Financial Institution mean: 

(1) Any person directly or indirectly, through one or more intermediaries, 

controlling, controlled by, or under common control with the Adviser or Financial 

Institution. For this purpose, the term “control” means the power to exercise a controlling 

influence over the management or policies of a person other than an individual; 

(2) Any officer, director, employee, relative (as defined in ERISA section 3(15)) or 

member of family (as defined in Code section 4975(e)(6)), agent or registered 

representative of, or partner in the Adviser or Financial Institution; and 

(3) Any corporation or partnership of which the Adviser or Financial Institution is an 

officer, director, or employee, or in which the Adviser or Financial Institution is a partner. 

(c) Investment advice is in the “Best Interest” of the Retirement Investor when the Adviser 

and Financial Institution providing the advice consider the Retirement Investor’s investment 

profile as well as product- or strategy-related factors in addition to cost, such as the product’s or 

strategy’s investment objectives, characteristics (including any special or unusual features), 

liquidity, risks and potential benefits, volatility and likely performance in a variety of market and 
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10

economic conditions act with the care, skill, prudence, and diligence under the circumstances 

then prevailing that a prudent person would exercise based on the investment objectives, risk 

tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the 

financial or other interests of the Adviser, Financial Institution or any Affiliate, or other party.

28

(d) “Debt Security” means a “debt security” any security available to be purchased in an 

IRAas defined in Rule 10b-10(d)(4) of the Exchange Act that is: 

(1) U.S. dollar denominated, issued by a U.S. corporation and offered pursuant to a 

registration statement under the Securities Act of 1933; 

(2) An “Agency Debt Security” as defined in FINRA Rule 6710(l) or its successor; 

or 

(3) A “U.S. Treasury Security” as defined in FINRA Rule 6710(p) or its successor.

29

(e) “Financial Institution” means the entity that 

(i) employs the Adviser or otherwise retains such individual as an independent 

contractor, agent or registered representative, and 

(ii) customarily purchases or sells Debt Securities30 for its own account in the 

ordinary course of its business, and that is: 

(1) Registered as an investment adviser under the Investment Advisers Act of 1940 

(15 USC 80b-1 et seq.) or under the laws of the state in which the adviser maintains its 

principal office and place of business; 

(2) A bank or similar financial institution supervised by the United States or state, or 

a savings association (as defined in section 3(b)(1) of the Federal Deposit Insurance Act 

(12 USC 1813(b)(1))), but only if the advice resulting in the compensation is provided 

through a trust department of the bank or similar financial institution or savings association 

which is subject to periodic examination and review by federal or state banking authorities; 

and 

 28 See Wells Fargo July 21 Letter, at App. A, pp 21-22 (§ II.B.iii.); IRI at 40-41; Correspondence from Lisa J. Bleier, 

Managing Director, Federal Government Relations and Associate General Counsel, Securities Industry and 

Financial Markets Association, to Office of Exemption Determinations, Employee Benefits Security Admin., Dep’t 

of Labor, regarding ZRIN: 1210-ZA25; PTE Application D-11712 (July 20, 2015) (“SIFMA BICE Letter”), at 18, 

available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00506.pdf. Alternatively:

(d) Investment advice is in the “Best Interest” of the Retirement Investor when the Adviser and Financial 

Institution (i) provides advice with the care, skill, prudence, and diligence under the circumstances then prevailing 

that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an 

enterprise of a like character and with like aims and (ii) solely in the interest of the Retirement Investor, in each case 

as such standards are interpreted under Section 404 of ERISAproviding the advice act with the care, skill, prudence, 

and diligence under the circumstances then prevailing that a prudent person would exercise based on the investment 

objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor , without regard to the 

financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party.

TIAA-CREF Letter, at 35; see supra note 6.

29 See supra note 1; see also 5 U.S.C. § 77b(a)(1).

30 See supra note 1.
Wells Fargo & Co.

Appendix D

11

(3) A broker or dealer registered under the Securities Exchange Act of 1934 (15 USC 

78a et seq.). 

(f) “Independent” means a person that: 

(1) Is not the Adviser or Financial Institution or an Affiliate; 

(2) Does not receive compensation or other consideration for his or her own account 

from the Adviser, Financial Institution or an Affiliate; and 

(3) Does not have a relationship to or an interest in the Adviser, Financial Institution 

or an Affiliate that might affect the exercise of the person’s best judgment in connection 

with transactions described in this exemption. 

(g) “Individual Retirement Account” or “IRA” means any trust, account or annuity 

described in Code section 4975(e)(1)(B) through (CF), including, for example, an individual 

retirement account described in Code section 408(a) and a health savings account described in 

section 223(d) of the Code.

31

(h) “Investment Grade Debt Security” means a non-convertible debt security that, at the 

time of sale, is rated in one of the four highest rating categories of at least two nationally 

recognized statistical rating organizations (as defined in section 3(a)(62) of the Exchange Act (15 

U.S.C. 78c(a)(62))).32

(ih) A “Material Conflict of Interest” exists when an Adviser or Financial Institution has a 

financial interest that, from the perspective of a reasonable person,33 could affect the exercise of 

its best judgment as a fiduciary in rendering advice to a Retirement Investor regarding Principal 

Transactions. 

(ji) “Plan” means an employee benefit plan described in ERISA section 3(3) and any plan 

described in Code section 4975(e)(1)(A). 

(kj)) “Principal Transaction” means a purchase or sale of a Debt Security34 where an 

Adviser or Financial Institution is purchasing from or selling to a Plan, participant or beneficiary 

account, or IRA on behalf of the Financial Institution’s own account or the account of a person 

directly or indirectly, through one or more intermediaries, controlling, controlled by, or under 

common control with the Financial Institution. 

(lk) “Retirement Investor” means: 

(1) a fiduciary of a non-participant directed Plan subject to Title I of ERISA with 

authority to make investment decisions for the Plan; 

(2) A participant or beneficiary of a Plan subject to Title I of ERISA with authority 

to direct the investment of assets in his or her Plan account or to take a distribution; or 

(3) The beneficial owner of an IRA acting on behalf of the IRA. 

 31 See Wells Fargo July 21 Letter, at App. A, pp 12-14 (§§ I.F.i. and ii.). This change to the definition of “Individual 

Retirement Account” or “IRA” was also made in Appendices B and C.

32 See id., at p. 30 (§ III.A.); 17 C.F.R. pt. 275.206(3)-3T(c).

33 See SIFMA BICE Letter, at 19.

34 See supra note 1.